The last thing technology investors probably expected was a cold shower, given the Nasdaq's recent hot streak. But Microsoft gave them one on Thursday when the software group announced the first fall in full-year sales in its 24 years as a public company. Microsoft's numbers missed Wall Street's already-downbeat fourth-quarter forecast by more than $1bn. On Friday, stock prices continued to drop across the sector, while Microsoft's shares extended an 8 per cent after-hours fall.
Bullish noises from the likes of Intel, Qualcomm and Samsung had fuelled hopes of a tech-led economic recovery. Indeed, component-makers do appear to have benefited from a pick-up in demand as hardware companies have replenished their depleted stockpiles. But Microsoft's weak performance and humdrum forecast are worrying. They suggest that a recovery in IT spending by end-users remains distant.
Still, not all of Microsoft's problems can be blamed on the broader economy. Some of them are because of technology shifts, others because of Microsoft's own failure to develop products to take on its increasingly powerful competitors. Google has won the search wars; Microsoft's putative search deal with Yahoo is a defensive move at best.