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RealTime IT News

Microsoft Misses Consensus Estimates

On the same day it cut the asking price for its vaunted Xbox console in Europe, Microsoft Corp. missed consensus estimates by 2 cents, posting a net income of $2.74 billion, or 49 cents per share.

The Redmond, Wash. software giant's revenue for the third quarter of 2002 was $7.25 billion, a 13 percent increase over the $6.40 billion reported in the prior year, but still less than the sales gain of 14 percent to $7.34 billion. Operating income also rose, totaling $3.3 billion compared to the even $3 billion from the year prior. Net income for the quarter was $2.74 billion.

Despite being off target, Microsoft emphasized the success of two of its largest initiatives this year, calling sales of the Windows XP operating system "robust" and stating that more than 1 million copies of its crucial Visual Studio .NET and the .NET Framework have shipped to developers.

"This quarter Windows XP shipped on nearly 60 percent of all new PCs, which represents a faster penetration than any of our previous operating systems," said Jim Allchin, group vice president of the Platforms Division at Microsoft, in a public statement.

Eric Rudder, senior vice president of the Developer and Platform Evangelism Group at Microsoft, said customers are coming out in droves for .NET: "Companies like Compaq, Deutsche Telekom, Ingram Micro, L'Oreal, Merrill Lynch and Xerox are seeing real and significant business value, productivity gains, and return on investment through .NET today."

Also, as widely reported by industry analysts, the software maker slashed prices for Xbox in Europe and Australia, marking it down from 479 euros (about $420) to 299 euros (about $265). Microsoft said the price cut was a play to make the console more affordable to gamers.

Goldman Sachs analyst Rick Sherlund agreed with this logic earlier in Thursday.

"The price in Europe was so high it took Xbox effectively out of the market and was in sharp contrast to that of the US and Japan," Sherlund said in a research note. "The volumes in Europe have been disappointing as a result, we estimate under 200,000 units since the March 14 launch. The lower price is not that material to earnings given the current low volumes in Europe. We cut our Xbox estimates on April 2 to reflect slower adoption in Europe and Japan."

Microsoft Thursday also offered guidance for 4Q 2002 and for the full fiscal year. For the 4Q ending this June, the outfit is assuming an EPS of 41 or 42 cents per share on a revenue of between $7 and $7.1 billion.

Microsoft said full-year tallies include an estimated revenue of $31.5 billion and $32.4 billion, with an EPS in the range of $1.89 to $1.92.

Microsoft shares fell 26 cents to close at $56.37 on the Nasdaq.