Microsoft shares slip on disappointing results

Shares of the world's largest software maker, whose operating systems power the vast majority of personal computers, fell $2.59 to $22.97, after it said business continued to be hurt by the weak global PC and server markets.

The drop weighed on broader indices, including the Dow Jones Industrial Average , and S&P 500 , as well as the Nasdaq , which declined 1.3 percent.

David Hilal, an analyst at FBR Capital Markets, downgraded the stock to "market perform" from "outperform", citing sharp gains in MICROSOFT (MSFT.NQ)s stock price in recent months, and concerns that technology spending may not bounce back this year.

"Although we believe that demand is stabilizing for both Microsoft and IT spending in general, we do not expect an improvement over the balance of this year," he said in a note to clients.

In its fiscal fourth quarter ended in June, Microsoft's total sales fell 17 percent to $13.1 billion, some $1 billion smaller than analysts' average estimate.

Citigroup analyst Brent Thill said he was also disappointed by Microsoft's weak forecast for gross margins in fiscal year 2010.

Still, in a client note titled "Keep Your Eye On The Prize," he reiterated his "buy" rating, citing the potential for improvements in 2010 when corporate demand is expected to rebound and its forthcoming Windows 7 operating system may help profit margins.

At Thursday's close, Microsoft had risen 70 percent in the past four months on hopes that Windows 7 will be a hit once it is released on October 22, and a positive reaction to its new Bing search engine.

(Reporting by Franklin Paul; Editing by Derek Caney)