Microsoft Earnings Meet Street’s Expectations

Microsoft Earnings

Microsoft reported a mixed bag of sales and earnings Thursday when it announced results from its third quarter of fiscal 2009, which ended on March 31.

Though the software giant is still profitable, it’s earnings and revenue reflected the same pressure weighing down on many across the IT landscape.

Overall, Microsoft (NASDAQ: MSFT) brought in $13.65 billion in revenues for the quarter, a slide of 6 percent from the same period a year ago. Net income came in at $2.98 billion with earnings per share (EPS) of $0.33 — which represented declines of 32 percent and 30 percent over the prior year, respectively.

Before one-time charges, the company earned $0.39 per share, in line with analysts’ estimates. Going into the announcement, analysts were predicting Microsoft would announce $14.1 billion in revenues, compared to $14.45 billion for the same quarter in 2008.

Continuing weaknesses in Microsoft’s key markets are the obvious villains.

“Revenue [was] impacted by weakness in IT spending, particularly the business PC and server hardware markets,” Microsoft said in a slide presentation accompanying its earnings release.

In contrast, last quarter, Microsoft brought in $16.63 billion in revenues, net income of $4.7 billion, and earnings per share of $0.47. Last quarter, Microsoft also posted a 2 percent increase in revenues over the same quarter last year, but an 8 percent decline in net income.

During its last last earnings report in January, the company announced 5,000 layoffs and, for the first time in years, had declined to provide any guidance to investors regarding its outlook for future quarters and the year.

Today, the company cited costs related to the layoffs as factoring into its results, to the tune of $290 million to cover severance charges. It also referred to $420 million of impairments on investments. Between them, the two charges dragged down EPS by $0.06.

For now, however, Microsoft employees can breathe a little easier. Ongoing rumors of another wave of layoffs were not fulfilled — at least not yet.

However, as before, Microsoft again provided little guidance for investors to rely on going forward.

On a conference call with financial analysts Thursday afternoon, Microsoft CFO Chris Liddell said that the company, and indeed the industry, have a long way to go before the economy turns around.

“We believe [recovery] will be slow due to continued weakness in demand,” Liddell said. “In the fourth quarter, we expect the environment to be difficult.”

In fact, he said, Microsoft expects “conditions to remain very challenging through the rest of the calendar year,” dragging out even as far as the end of 2010.

Weakness “across the board”

For the fourth quarter of fiscal 2009, analysts are predicting EPS of $0.40 and revenues of $15.04 billion. That contrasts with $15.84 billion in revenue for the same quarter of fiscal 2008, and year ago EPS of $0.46.

Analysts’ consensus prior to today’s earnings was that Microsoft will gross $60.78 billion in fiscal 2009, with nearly flat growth to $61.74 billion in fiscal 2010. In October, Microsoft had offered guidance that it was on track to hit between $64.9 billion and $66.4 billion in fiscal 2009, which ends June 30.

While Liddell did not offer any financial guidance to analysts, he did point out that Microsoft has several products due to ship in the next year and a half. Among them: Windows 7, Office 2010, and Exchange Server 2010.

[cob:Special_Report]Then there are Microsoft’s search properties.

“We’ve got potentially a new search product coming in the next few months,” Liddell said, potentially referring to a rumored revamping of Microsoft’s Live Search brand. He also referred, at least in passing, to Microsoft’s online services initiatives.

“In the next 18 months, we will be bringing a large group of products and services to market,” Liddell said.

As a result, he seemed confident that the company would be in a better position to outperform others in the tech industry. “Once we start to get the economic pick-up, we think we’ll do better than the [average companies in] the pick-up.”

While Microsoft officials may be at least mildly confident, though, one analyst didn’t mince words.

“It was probably one of the worst [quarters] in Microsoft’s history,” Matt Rosoff, lead analyst at Directions on Microsoft, said on a call with reporters, when he describing the weaknesses as being “across the board.”

As for Windows 7, which will come out in time for fiscal 2010, however, Rosoff had a glimmer of hope.

“When they release Windows 7, it might have a pretty good upgrade bump from the consumer side,” he added, saying that a lot of customers who already have PCs running Windows Vista are likely to get the upgrade.

Microsoft had been sailing along fairly smoothly as recently as October, when it reported 9 percent growth in revenues year-over-year for its first fiscal quarter of 2009.

Even then, though, cracks were beginning to reveal that the economy had started to take its toll. Despite bringing in $15.06 billion for the first quarter, which ended September 30, net income growth had slowed to 2 percent year-over-year, at $4.37 billion.

In early after-hours trading, the company’s stock was up 5.44 percent at $19.95, a gain of $1.03.

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