The City roundup video: Why are Microsoft’s profits falling?

Video: Alex Lawson provides a run-down of the day's major news from the City

The Microsoft logo. (FRED DUFOUR | AFP | Getty Images)

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Think Microsoft and your mind is probably thrust into the world of Bill Gates and pop-up windows that propelled it to dominate offices worldwide over the last two decades.

But the PC giant last night reported a 10% drop in quarterly profits due to a tax crackdown, falling sales of Windows and a costly restructure.

Along with several of its rivals, the tax authorities are look hard at tech firms and Microsofts tactics in funnelling sales through low tax hubs in Ireland, Singapore and Puerto Rico has seen effective tax rate rise from 17% to 25%.

Its balance sheet has also been hit by a costly restructuring of the organisation, which has totalled $1.4 billion in the last six months, as boss Satya Nadella attempts to re-organise the tech behemoth for for the digital, cloud-dominated age. The company has laid off 17,500 people in the process.

One of Nadella’s chief headaches is to restructure and integrate phone-making arm Nokia while getting its software revenue, which fell 13% in the quarter, back on track. The problem is chiefly that while its Xbox and Office 365 business are growing quickly, like rival IBM, the traditional PC and hardware market remains a tough, tough game.