The results, which fell below Wall Street's expectations, included a large write-off for Microsoft Corp.'s surface RT business. A poor reception for Windows 8 contributed to a revenue drop in the company's operating system software unit.
Microsoft "struggled far more than we had expected," said Cowen & Co. analyst Gregg Moskowitz, who downgraded the company's stock to "Neutral" from "Buy," and cut his price target to $33 from $38,
The analyst said in a note to investors that he is "much less confident" that the company can deliver healthy growth in the near future due to the magnitude of the Windows decline, the challenges for Surface, pressure on profit margins and the company's reorganization plans.
Microsoft announced a major reorganization late week, aimed at helping it transform into a "devices and services" company that is less reliant on providing software for personal computers. But the earnings miss raised new questions as to whether the transition will succeed.
Janney Capital Markets analyst Yun Kim called the quarter's results "weak," with all five of Microsoft's divisions reporting revenue below Wall Street's expectations. Windows, Kim added, came in "especially weak," reflecting not only the ongoing decline of the PC, but lack of demand for Surface and other tablets running Windows
Redmond, Wash.-based Microsoft's shares fell $4.01, or 11.3 percent, to $31.43 in afternoon trading. This means the stock is on track to see its biggest price drop since January 2009. Year to date, Microsoft's shares are up more than 18 percent.