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A bad quarter for Microsoft, but don't count the software giant out yet

Earnings are down at Microsoft, and the company is dealing with a $900 million write-down on its Surface line. 

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Reuters
People visit the Microsoft booth at the 2013 Computex exhibition at the TWTC Nangang exhibition hall in Taipei in this 2013 file photo. Microsoft reported lower-than expected quarterly earnings today, as slow personal computer sales ate into its Windows business.
  • By Matthew Shaer

It was a grim morning for software giant Microsoft. 

First, there were the disappointing quarterly results: dismal earnings attributed to weak PC sales and a $900 million write-down for the ailing Surface tablet line. Then there were tumbling shares, which fell 9 percent in trading on Friday, the steepest decline in four years, according to Bloomberg BusinessWeek. 

In a conference call with reporters, Microsoft Chief Financial Officer Amy Hood blamed the grim numbers on the rapidly-deflating PC market. "Our Windows business declined [and] we are working to transition this business into the modern era," she said. 

The analytics firm Gartner recently estimated that by 2017, tablet sales will outstrip sales of desktops and laptops, once the mainstay of the personal computing market. Already, Gartner reported, many consumers are opting for tablets over traditional PCs. 

Microsoft has attempted to embrace this new market segment, launching a full range of Windows Phone 8-powered smart phones and Surface tablets. But the Surface has been slow to take off, and this week Microsoft dropped the price on the 32GB Surface RT by $150 bucks – a move that was seen by many onlookers as an omen of an early death for the Windows tablet line. 

But let's not confuse a bad quarter – and an equally bad crop of tablet sales – with the end of Microsoft. The Washington-based company is still a multi-billion juggernaut, with plenty of resources and tricks up its sleeve, as evidenced by the new "One Microsoft" strategy. 

"Microsoft is far from on death's door," Gartner tech industry analyst David Cearley said in an interview with USA Today. "They are aggressively addressing a wide range of market challenges. Yes, they still have significant execution challenges, but, going forward, they remain a strong player in the market."

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