Microsoft Sees Lower IT Spending

REDMOND, Wash. (TheStreet) -- Despite beating Wall Street estimates in its fourth-quarter earnings report released Thursday, Microsoft (MSFT) was the Dow's biggest decliner on Friday. Shares closed at $28.18, down 3.36%.

After a big holiday season consumer lift, Microsoft's next sales boost from the business sector looks a long way off.

Microsoft ripped through fiscal second-quarter sales targets by riding a massive wave of Windows 7-powered PC purchases at the end of last year, the software giant reported Thursday.
Microsoft

But while the consumer segment grew 12% for Microsoft, sales in the business unit fell 6% as enterprise customers continue to hold off on their IT investments.

"While consumer demand remains healthy, we have not seen a return of enterprise spending growth," Microsoft CFO Peter Klein told analysts on an earnings conference call Thursday.

Looking ahead, Microsoft executives also said they are seeing delays in renewals of sales agreements.

"Enterprise agreement sales cycles have lengthened," said Bill Koefoed, the software firm's investor relations chief, according to a transcript published by Seeking Alpha.

The comments not only provide a bleak update on what has been a long and painful IT spending drought, they suggest that an upturn could be years away. This is particularly troubling if your core business is desktop software, and your customers are exploring alternatives to the conventional Windows and Intel ( INTC) boxes.

Comments last week from a group of chief information officers shed a bit of light on IT buying trends amid the downturn, and PC makers like Dell ( DELL) and Hewlett-Packard ( HPQ), along with Microsoft and Intel, don't figure very strongly in the plan.

"Our desktop replacement strategy is done through attrition," Bill Eline, Parker Hannifin's CIO, told analysts last week at an IT spending summit. Eline said his company would likely increase IT spending about 2% this year. And the direction of that spending included a two-year plan to shift toward virtualization by replacing desktop computers with shared central computers.

Regarding Windows 7 specifically, Eline said the company was evaluating the software. He also noted he was hesitant to make sweeping software changes that could disrupt current business applications used by the company and its clients.

"That's the type of science project I'm not really looking for," said Eline.

Microsoft hasn't exactly engendered warm feelings among tech buyers after the brilliant failure of its Vista operating system. But Windows 7 does offer Microsoft a chance to make peace and win back some loyalty.

Microsoft CFO Klein was optimistic on the call.

"As the enterprise spend does pick up and given our product pipeline, we feel very well positioned from an enterprise agreement perspective," Klein said.

Hopefully for Microsoft, the pick-up happens before its customers pack up and move to other vendors like virtualization shop VMWare.

-- Reported by Scott Moritz in New York

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