The 29 percent drop in Microsoft Corp.’s fourth-quarter profit reported on Thursday is an indication that the demand for Windows and Office software is still on the decline, amid the extensive economic weakness and the crash in PC sales.

The reported plunge in Microsoft’s profits – from $4.3 billion in the same-quarter earlier year to $3.05 billion - largely resulted from charges related to the Redmond, Washington-based software maker’s forthcoming operating system rollout; along with $193 million in legal charges; $108 million of impairments to investments; and $40 million in additional severance-related charges.

With a 17 percent fall in Microsoft’s fourth-quarter revenue, to $13.1 billion, the figures dropped below the average analysts’ expectations of $14.5 billion revenue. In fact, all of Microsoft’s five business units posted revenues lower than both the year-before figures and the Wall Street’s estimates.

The quarter also saw Microsoft post its first ever annual sales decline - a fall of 3.3 percent to $58.4 billion.

Commenting on the “disappointing” quarterly results, Microsoft’s Chief Financial Officer, Chris Liddell, said: “Our businesses continued to be negatively impacted by weakness in the global PC and server markets. The economy continues to be challenging and we need to lift our game to another level.”

Liddell added that while there are “signs we’ve seen the worst,” conditions are likely to be difficult for the rest of 2009!