RealTime IT News

Microsoft Beats Estimates...With A Catch

Microsoft Corp. gave analysts a pleasant surprise Thursday afternoon, beating Wall Street's earnings forecasts for the quarter that ended Dec. 31 by 6 cents a share. But -- and there is a but -- some have questioned whether the analysts properly adjusted their figures to account for a delay in the sale of online travel company Expedia .

The good news also came mixed with some bad. The company revised its guidance for the quarter ending March 31. It said revenue is expected to be in the range of $7.3 to $7.4 billion. Previous guidance had suggested revenue of about $7.5 billion.

"While we are pleased with our results this quarter, we are concerned about the health of the global economy and have yet to see a recovery in many of the world's largest markets," said Chief Financial Officer John Connors.

The company reported earnings of 49 cents per share after the bell Thursday, beating analysts' forecasts of 43 cents per share. The company declared the quarter's revenue, $7.74 billion, a record. That's an increase of 17 percent over the $6.55 billion in revenue it reported in the same quarter last year. Operating income came in at $2.84 billion, including a $660 million charge for estimated expenses in connection with ongoing consumer class action lawsuits.

Microsoft attributed much of the quarter's gains to some of the products it launched late in 2001.

"We reported record revenue this quarter on the strength of three very successful product launches," Connors said. "Windows XP, Xbox and MSN 7 are off to terrific starts. Additionally, our continued focus on cost control and efficiency really paid off in terms of our operating results."

The company said Windows XP led the charge, with more than 17 million copies sold during the quarter. Microsoft claimed that made it the most successful Windows launch ever.

"Windows XP drove great results for the Windows division this quarter," said Jim Allchin, group vice president of platforms at Microsoft. "Client operating system sales were up 24 percent from last year."

The company also said it sold 1.5 million Xbox game consoles during the quarter. The company also promised greater opportunities in 2002 as it unleashes online gaming through the console.

As for MSN, the company said it now has 7.7 million MSN Internet Access subscribers and more than 300,000 subscribers of other MSN premium services.

The numbers also come on the heels of the announcement of a completely new strategy for the software behemoth. According to an e-mail memo from Microsoft Chairman and Chief Software Architect Bill Gates that was leaked to the press Thursday morning, the company will now give security preference over new features in its software.

"Over the last year it has become clear that ensuring .NET is a platform for Trustworty Computing is more important than any other part of our work," Gates told Microsoft employees in the memo. "If we don't do this, people simply won't be willing -- or able -- to take advantage of all the other great work we do. Trustworthy Computing is the highest priority for all the work we are doing."

The issue of security has been a thorn in the company's side for years. Numerous security flaws in its Outlook e-mail client and IIS Web server software, as well as several high profile penetrations of its network, have stained the company's reputation. Just this Tuesday, it fixed a glitch -- introduced by a technician -- which denied users access to its Windows Update service for five days. As the company unfolds its .NET Web services strategy, which depends upon the availability and security of the services, a reputation for being secure becomes ever more important.

"In the past, we've made our software and services more compelling for users by adding new features and functionality, and by making our platform richly extensible," Gates said.

However, he noted that won't cut it if customers don't perceive its products as secure.

"So now, when we face a choice between adding features and resolving security issues, we need to choose security," he said.