July 17 (Bloomberg) -- Microsoft Corp., the world's biggest software maker, posted fourth-quarter profit that trailed analyst estimates and gave a disappointing forecast after a sluggish U.S. economy crimped sales, sending the shares down 6.4 percent.
Net income increased 42 percent to $4.3 billion, or 46 cents a share, from $3.04 billion, or 31 cents, a year earlier, the company said in a statement today. That missed the 47-cent average of estimates compiled by Bloomberg. Sales rose 18 percent to $15.8 billion in the quarter ended June 30.
Sales of word-processing and spreadsheet products missed Microsoft's goals for the second straight time amid what Goldman Sachs says is the worst technology spending environment since 2003. Chief Executive Officer Steve Ballmer is courting sales overseas, and efforts have been hampered by piracy in countries such as China, where eight in 10 programs are illegal copies.
``The forecast from Microsoft was a little light, reflecting the slowing economy,'' Michael Holland, chairman of Holland & Co. in New York, which owns the shares, said in a Bloomberg Radio interview. ``They also have a major issue with piracy, and it looks like an intractable problem.''
Microsoft, based in Redmond, Washington, forecast first- quarter earnings of 47 cents to 48 cents a share on sales of $14.7 billion to $14.9 billion. Analysts on average anticipated a profit of 49 cents on sales of $15.1 billion.
Microsoft cut 1 cent from its forecast for the fiscal year that started this month, saying profit will be as little as $2.12 a share, instead of $2.13. Sales will be $67.3 billion to $68.1 billion. Analysts' estimates averaged out to a profit of $2.17 and sales of $67.4 billion.
Office, Online
Microsoft dropped $1.76 to $25.76 in late trading. The stock had risen 26 cents to $27.52 as of 4 p.m. New York time in Nasdaq Stock Market trading and has fallen 23 percent this year.
Google Inc. also posted profit that trailed forecasts today, missing analysts' projections for just the third time since it sold shares to the public. The stock sank as much as 12 percent.
Sales of Internet advertising missed Microsoft's estimates as the business lost search queries to Mountain View, California- based Google. The unit's loss widened to $488 million amid higher spending. Revenue from business applications trailed estimates as customers choose cheaper versions of the Office software, Chief Financial Officer Chris Liddell said today on a conference call.
Ballmer, 52, is contending with a slowdown in the U.S. economy and rapid growth in emerging markets, where average prices are lower and pirated copies account for more than half of software in use, according to the Business Software Alliance trade group in Washington.
Economy
Sales in the U.S. increased 15 percent, and revenue abroad gained 18 percent, Liddell said in an interview. The first- quarter miss is because of ``very tough comparables'' to the year earlier, which benefited from demand for the Xbox and a reduction in piracy, he said. Business will improve throughout the year, he said. The company also spent money to ramp up its staff overseas.
``Given the economic environment out there, I'm very happy,'' Liddell said.
PC sales rose 16 percent to 71.9 million units worldwide last quarter after price cuts stoked demand, Stamford, Connecticut-based Gartner Inc. said yesterday. That beat the 11 percent growth the researcher had predicted.
``Based on PC unit sales, people expected better guidance,'' said Jeff Gaggin, a New York-based analyst at Avian Securities. He has a positive rating on the shares and doesn't own them.
Windows sales topped estimates in the fourth quarter, rising 15 percent to $4.37 billion and rebounding after an increase in piracy caused the unit to fall short in the third quarter.
Yahoo, Xbox
To build other avenues for sales, Ballmer moved into online advertising and this year sought to buy all or part of Yahoo! Inc. Microsoft, owner of the No. 3 search engine, would triple its users by acquiring Sunnyvale, California-based Yahoo, the No. 2 player in the market.
Microsoft made its initial bid of $44.6 billion, or $31 a share, public in February and negotiations broke down in May. Now activist investor Carl Icahn is trying to oust Yahoo's board at an Aug. 1 meeting, and Microsoft said this month it may restart talks on a combination if he wins.
Microsoft said today that it had offered to buy $3.9 billion in Yahoo stock at $19.50 a share as part of its proposal to buy the Internet company's search business. Liddell also said the company would guarantee revenue for Yahoo for up to 15 years, depending on the performance of its Web site.
Sales in the online business will increase as much as 20 percent this year as the company makes acquisitions and develops new technology, Liddell said.
One bright spot has been the Xbox video-game business, which lowered prices to spur sales in Europe and benefited from providing exclusive content for the best-selling ``Grand Theft Auto IV'' to online players. The business posted a profit for the year and sales in the quarter were in line with estimates.
Xbox gains will abate in coming month, and revenue may fall as much as 4 percent this year, Microsoft said. There is no new Xbox coming soon.
To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net
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