FOR THE pessimists who turned out in force to hammer its stock yesterday, Microsoft’s stumbling performance in its latest quarter was confirmation that the tech world’s most daunting profit engine is misfiring badly.

The results reinforced a fear that Microsoft is losing out to broader trends in the tech world, in particular when compared with rivals such as Apple and Google.

That was enough to wipe nearly 9 per cent from the company’s shares, slicing $20 billion (€14 billion) from its stock market value.

Yet while critics say Microsoft’s thinking is still dominated by the PC and woefully behind the times, the optimists claim that a sea-change has taken place in its thinking since the middle of this decade, even if Microsoft moves more slowly than others.

“They get it plenty,” says Sarah Friar, analyst at Goldman Sachs. “But ultimately, a more gradual shift is to Microsoft’s benefit.”

Three forces aligned to make the second quarter of this year a nadir in Microsoft’s fortunes.

One was the company’s greater exposure to the economic downturn than that shown by other tech giants. With its heavy dependence on more profitable sales to business customers, and its relatively low level of regular annuity revenue, Microsoft proved vulnerable to the decision made by many businesses to delay upgrades.

A second factor is the timing of Microsoft’s main product cycles. With new versions of Windows for the PC and server due out later this year, and a new Office early in 2010, Microsoft was already facing a significant lull.

The third factor raises more troubling thoughts. The tech markets are shifting – towards buyers in emerging market countries, and towards lower-priced laptops known as netbooks and a greater centralisation of computing resources in “the cloud”. – (Copyright The Financial Times Limited 2009)