RealTime IT News

Microsoft Beats Analyst Projections

UPDATED: Microsoft beat Wall Street estimates for its first fiscal quarter ended September 30 but expects to take a minor hit in the current quarter due to its recently-announced coupon promotion.

The company posted an impressive net income of $3.48 billion, or 35 cents per share, on revenues of $10.81 billion. Analysts polled by Thomson Financial were expecting earnings of 31 cents per share, on revenue of $10.75 billion.

Those numbers were a notable gain over earnings of $3.14 billion, or 29 cents per share, for the same quarter in 2005. Revenue in Q1 2005 was $9.74 billion.

Operating income for the quarter was $4.47 billion, an 11 percent increase compared with $4.05 billion in the prior year. Once again, legal expenses ate into the bottom line, costing the company 2 cents per share.

Going into this quarter, Microsoft  is projecting a slight dip in revenue and net income due to its Technology Guarantee Program, a discount coupon for customers to purchase Windows Vista and Office 2007 when the two products ship in January.

Chris Liddell, senior VP and chief financial officer for Microsoft, repeatedly emphasized on a conference call with financial analysts that the deferment of income would only be for one quarter, from the second fiscal quarter to the third, and it would not impact the full year projections.

The deferred income would be around $1.5 billion. Liddell said Q2 revenue would be between $11.8 and $12.4 billion, flat to up five percent over the same quarter from a year ago, due to the impact of the Technology Guarantee.

Prior to the program, revenues would have been between $13.3 billion to $13.9 billion. Net income is projected to be between $2.9 and $3.1 billion.

Overall, Liddell expected that revenue growth in the first half of 2007 would be impacted by increasing investments in launches and the Technology Guarantee program.

However, this scenario will reverse in second half when Microsoft expects operating income will grow much faster after Vista and Office 2007 reach the market.

The entertainment and devices division saw the biggest gain, with revenue up 70 percent over the prior year thanks to growth in the Xbox 360 and related products. Losses in the entertainment and devices division shrank to $96 million from $173 million a year earlier.

Liddell did not make projections on sales of the Zune, its handheld entertainment device due to ship on November 14. He said it could fare poorly or could do very well, so it has potential to be a drag or a boost on the bottom line and it was too early to tell.

Servers and tools revenue continued its impressive growth, up 17 percent on the strength of SQL Server 2005, Windows Server, Visual Studio 2005 and BizTalk Server. SQL Server 2005 sales alone were up 30 percent over the previous year. Microsoft expects server and tool revenue to grow 14 to 15 percent in fiscal 2007.

Online revenue is still a bit of a drag as the company continues to transition to the adCenter service. Online revenue was down by five percent in the prior quarter. Liddell projected online revenue to be up seven to 11 percent for the year, but dip three to five percent in the next quarter.

Overall, Microsoft projects fiscal year 2007 revenue to be between $50 and $50.9 billion, a slight upward revision from the last quarter, with earnings between $1.43 to $1.46 per share. Wall Street analysts have been looking a full-year profit of $1.44 per share on sales of $50.3 billion.