Microsoft earnings beat estimates, outlook lower
Microsoft on Thursday reported first-quarter earnings that narrowly topped estimates, while saying that it expects the holiday season results to be slightly lower than analysts were projecting.
The company lowered its estimates of both PC and server growth by a couple of percentage points, but said it continues to see relatively healthy enterprise demand.
"There are indications out there that business is fairly strong, but there is also concern about what could happen," Chief Accounting Officer Frank Brod told CNET News.
For the quarter that ended September 30, the software maker said it earned $6 billion, or 48 cents per share, on revenue of $15.06 billion. The company had been expected to post per-share earnings of 47 cents per share, on revenue of $14.78 billion, according to Thomson Reuters.
"In spite of all that is going on we had a fairly good quarter," Brod said.
Looking ahead, Microsoft projected December quarterly earnings of 51 cents to 53 cents per share, with revenue in the range of $17.3 billion to $17.8 billion. Microsoft had been expected to post per-share earnings of 55 cents, on revenue of $17.96 billion, according to Thomson Reuters.
Brod also said the company had not seen a big drop-off in long-term contracts. "Our renewal rate on annuity contracts was at our historic levels so we were pleased to see that as well," Brod said.
Microsoft shares inched higher in after-hours trading, changing hands recently at 22.68, up 36 cents or more than 1 percent. That came on top of a 3 percent gain in regular trading.
The company is tempering its hiring plans, but he reiterated no plans for a full-on freeze in new hiring.
"We may see some pauses in select groups," Brod said. "Overall, we will still have growth, although it probably won't be as robust as we talked about just a few months ago."
Brod said that while the company is trying to keep expense growth in check, it also is trying to use the downturn as a chance to build new businesses. He noted that Microsoft invested heavily after the dot-com bust in its Server and Tools business and that unit now generates billions in sales.
"Current business certainly is influenced by current economic conditions but our future growth is influenced on how we currently choose to invest."
He said that the company's acquisition strategy has not really changed and reiterated that the company has no active talks with Yahoo.
As for the individual business units, it was a mixed bag. Among the bright spots was Microsoft's money-losing online unit, which turned in better-than-expected online advertising sales growth of 15 percent.
"We were pleased," Brod said.
Profits in the Windows unit were down year-over-year, despite slight growth in the unit's sales. The company's business division and server and tools unit posted a combined 19 percent sales growth, with double-digit profit growth as well..
The company is shaving its forecast for PC sales, now expecting the holiday quarter will be up 8 percent to 12 percent, as compared to a prior forecast of 12 percent to 15 percent.
"We are still seeing the market growing," Brod said. "That's still close to double digit growth."
Microsoft's server forecast is also coming down a few percentage points, Brod said.
During her years at CNET News, Ina Fried has changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley. These days, most of her attention is focused on Microsoft. E-mail Ina. 
Brod sounded weird when he mentions Windows Servers, though - MSFT was pushing server OSes long and hard ever since Windows NT. I think the only visible sign that MSFT put any extra dough into Win2k3 was the massive toolkits they built in to try at persuading Windows NT holdouts to migrate to Win2k3 (at Win2k3's launch party, they went into overtime showing off demos of migrations back and forth -- in both directions-- of Windows NT -> Win2k3 AD). In spite of that, I think it was when MSFT finally decided to EOL Windows NT and stop making security patches for it that the NT holdout crowd decided to start migrating (coupled with some pretty big discounts on Win2k3 licensing to boot for those who had primarily NT environments).
Either way, with profits failing to meet even internal targets, I suspect that it's a sign that the giant has stumbled. Question is, will they manage to make it through the economic mess without losing marketshare?
"Either way, with profits failing to meet even internal targets, I suspect that it's a sign that the giant has stumbled. Question is, will they manage to make it through the economic mess without losing marketshare?"
As I recall, you have been proclaiming the company's downfall for over two years now, stating publically that it was a financial failure. With a profitable year and increase reported, you are calling this a stumble? Well, perhaps they didn't grow as much as they would have liked, but in this economy, the reality is that everyone is readjusting their outlook.
Will they lose marketshare? Probably, but I don't think this has anything to do with the economic situation. Will this affect them financially as they are rapdily expanding into other products and services? Probably not.
By the by, prove I'm wrong in what I wrote up there. That's all you have to do.
Stop crying wolf... it's getting extremely boring.
- by Penguinisto October 23, 2008 3:25 PM PDT
- @Mr. Dee, Dan:
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- by KTLA_knew October 23, 2008 3:35 PM PDT
- "Seriously, kids: MSFT's profits fell."
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- by Penguinisto October 23, 2008 3:45 PM PDT
- "Profits in the Windows unit were down year-over-year, despite slight growth in the unit's sales"
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- by james3838 October 23, 2008 5:49 PM PDT
- "-splain that one."
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(11 Comments)Are you two going to actually refute my argument with facts, or are you simply going to pound out non-sequiturs and ad-hominems?
Seriously, kids: MSFT's profits fell. There are only a limited number of reasons for that, the big two being either less sales (which you two deny vehemently), or lower costs per unit sold (which seems a likely candidate). So unless you can point to another reason entirely (nope - not the economy - Apple gained massive profit growth last quarter, so 'splain that first if you try the economy angle)? Well, let's hear it. Why did MSFT's profits fall?
Let's see if you can do it this time without falling back on name-calling, passive-aggressive mis-characterizations, or completely irrelevant analogies.
C'mon... you can do it. Let's see you at least try.
Uh, OK. You're lying. MSFT's profit did NOT fall. They had a net profit of $4.37B, which is HIGHER than the same period a year ago. Yes, their profits "fell" UP to $4.37B. I would LOVE to have that kind of problem.
Wow, that was EASY.
-splain that one.
/P
That didn't take long, just required a bit of reading. Guess the new Apple commericial is correct:
The Windows division?s profit, on the other hand, slipped 4 percent to $3.3 billion. Microsoft, which recently launched a massive new advertising campaign to trumpet Windows? virtues, attributed the decline to higher marketing expenses. It also added an unspecified number of people to Windows? research and development team.