Microsoft shares plunge after poor results, analyst downgrades

Microsoft Corp shares fell 9 per cent in early trading, a day after the software company posted dismal quarterly results due to weak demand for PCs and disappointing sales of its Surface tablets.

Brokerages Raymond James and Cowen & Co cut their ratings on Microsoft stock by a notch to "market perform" and at least five others trimmed their price targets by as much as $3.

Price targets were cut as low as $35, below Thursday's closing price of $35.44. The shares fell to $32.00 on the Nasdaq.

FBR Capital Markets analyst David Hilal said Microsoft's revenue from Windows operating system in the fourth quarter was 9 per cent below his expectations.

"The key potential growth drivers (Windows 8, Surface) of the Microsoft story appear to be fading, heading into FY14,"Hilal wrote in a note.

Microsoft posted lower-than-expected quarterly earnings on Thursday, hit by a $900 million write down on its Surface tablets after it cut prices.

Earlier this week, Microsoft said it was drastically cutting Surface prices to entice buyers, reducing the value of the devices in its inventory.

Microsoft launched Surface tablets last year to challenge Apple Inc's iPad, but their sales have failed to meet expectations.

"Unfortunately, the new Windows RT operating system has not been the hit MSFT had hoped for," Cowen analyst Gregg Moskowitz said in a note, adding that investor expectations for the tablet were never very high.

Janney Capital Markets analysts said the write down was an admission that Microsoft's first attempt in the tablet market had not been successful.

The company also said on Thursday it expected revenue from Windows software to continue to fall due to a weak PC market.

Microsoft's outlook points to a weaker PC market, shifts towards subscription revenue and a pause ahead of the Xbox One gaming console release, all of which are expected to put revenue growth under pressure, Morgan Stanley analysts said in a note.

Xbox is the only device by Microsoft that has found a following among consumers and a new version is expected to launch this year.