January 25, 2007 1:34 PM PST

Microsoft sales unharmed by Vista delays

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Microsoft tops earnings forecast

October 26, 2006

Holiday PC buyers get Vista upgrade promise

October 24, 2006
With holiday PC sales apparently unscathed by the lack of Windows Vista, Microsoft reported quarterly earnings Thursday that topped expectations and its own forecast.

The software giant said it earned $2.63 billion, or 26 cents per share, on revenue of $12.54 billion for the three months ended December 31, its second fiscal quarter. That compares with earnings of $3.65 billion, or 34 cents per share, on revenue of $11.83 billion for the same quarter a year ago.

Microsoft said in October to expect per-share earnings of 22 cents to 24 cents on revenue of $11.8 billion to $12.4 billion. Analysts had been looking for earnings of 23 cents per share on revenue of $12.08 billion, according to First Call.

"Results this quarter exceeded our expectations across the board, with revenue growth at or above our high-end guidance for all divisions," Microsoft CFO Chris Liddell said in a statement. "Healthy PC and server markets, as well as broad-based business and consumer demand for Microsoft offerings, fueled revenue growth this quarter."

In addition, Microsoft said it took in, but deferred, $1.64 billion of revenue to account for an upgrade program that allowed those who bought Office or a new Windows PC during the holidays to get a free upgrade to the new products--Office 2007 and Windows Vista. The company had projected about $1.5 billion in deferred revenue. The company said the deferred revenue transates to about $1.13 billion worth of earnings, or 11 cents per share.

For the current quarter, Microsoft is expecting revenue to be in the range of $13.7 billion to $14.0 billion, with per share earnings of around 45 cents or 46 cents, with both figures accounting for the impact of the deferred revenue. Analysts were expecting 46 cents per share in earnings on revenue of $13.98 billion, according to First Call.

Microsoft is seeing slightly higher earnings projections and about the same revenue estimate as it previously expected for the fiscal year. The company now expects full-year revenue in the range of $50.2 billion to $50.7 billion, with per-share earnings of $1.45 to $1.47. In October, the company had pegged full-year revenue in the range of $50 billion to $50.9 billion and per-share earnings in the range of $1.43 to $1.46.

However, Microsoft is changing its expectations of where that revenue will come from, saying more revenue is now projected to come from its core Windows, Office and server software businesses, while its Xbox and Internet services businesses are now seen producing less revenue.

The company is forecasting its Net services business to grow 3 percent to 8 percent for the year, down from a prior estimate of 7 percent to 11 percent growth.

"We had ambitious guidance in the back half of the year," Colleen Healy, general manager of investor relations, said in an interview. "We're going to take a more cautious view."

On the Xbox side, Microsoft's Healy said Microsoft is "delighted with where we are from a competitive standpoint" but said the company is "taking a more cautious view on the market."

On a conference call with analysts, Liddell said that Microsoft now expects to have sold 12 million Xbox 360s by the end of June, down from its previous expectations of 13 million to 15 million consoles. That's despite the fact the company sold 10.4 million consoles by the end of December, up from its goal of 10 million units.

"We're making tradeoffs and choices...to achieve (our) target of profitability," Liddell said.

Healy said PC sales in the holiday quarter were a little higher than expected, but Microsoft is not changing its forecast for the remainder of its fiscal year.

As for Microsoft's overall drop in revenue compared with a year ago, Healy noted that the company would have posted 20 percent growth if one includes the sales that were deferred to this quarter. "Twenty percent growth is good growth for any company, let alone a company our size," she said.

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15 comments

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No surprise here
I'm really not surprised by Microsoft's sales not slumping over the holiday season. Why? Many people I know, including both the technical and non-technical people, seem to be unwilling to jump on board with Microsoft's new OS. Some of them bought new computers during this time frame specifically to make sure they could still get PCs that are running XP rather than Vista!

If this attitude is as common as it appears, I think Microsoft might take a little while to get a decent Vista acceptance level in the consumer market.

Myself, I'm still happy with Mac OS X.
Posted by ddesy (4336 comments )
Reply Link Flag
That MUST be it
There isn't any other reasonable explanation for having another good quarter, other than Vista forcing everyone to buy PCs before the launch...
Posted by KTLA_knew (385 comments )
Link Flag
Exactly -- this says that nobody cares about Vista
And nobody put off buying a computer to wait for it.
Posted by mh20932 (41 comments )
Link Flag
Spoken
like a true fanboy. You logic is so flawed.

Regardless of whether you MS, Apple, or Linux fan there are just some glaring obvious facts here.

Staring on the 30th of this month Vista will come pre-installed on many vendors PC?s. The number of PC?s that will be sold in one month by HP and Dell with Vista on them will be quite large.

In a matter of a few months almost all major vendors will ship Vista on all of their PC?s. Gateway, Toshiba, Acer, IBM?.all will ship Vista on 90+% of the PC?s they ship.

So at the end of 2007 there will be far more PC?s with Vista on them than all of the Macs running OSX.

That is a fact?.and not some fanboy dream. Like it or not.
Posted by Lindy01 (443 comments )
Link Flag
And when they perform well next quarter, what will you say?
"Many people I know, including both the technical and non-technical people, seem to be unwilling to jump on board with Microsoft's new OS...If this attitude is as common as it appears"

Wow, that looks like some strong data you got there. How many people do you know? Millions?

You are free to hate MS, detest Bill Gates and believe Vista is a meaningless upgrade, but unless you have any real data, your speculation is simply unfounded. Do you simply have some inside scoop that all the financial analysts seem to have missed?

The real question is, how will you spin Microsoft's positive 1Q performance if they meet or outperform expectations again? Evil empire? forced upgrade? Whatever will you reality-denying haters pull out of your hats?

-Mister Winky
Posted by Mister Winky (301 comments )
Link Flag
Strange Accounting Spin
"Healy noted that the company would have posted 20 percent
growth if one includes the sales that were deferred to this quarter."

Translation...If we applied some of this quarter's sales to last
quarter's numbers, it would have been a pretty good quarter.
Posted by chabig83 (535 comments )
Reply Link Flag
Free Vista Coupons
Most are getting certificates for Vista when they buy a new computer, so it really is a good time to buy a new pc...

2 Operating Systems for the price of 1

Vista works well... you install, if not then, well you fall back to xp...
Posted by SiXiam (69 comments )
Link Flag
Not spin, but there is a story there
Sales that were "deferred to this quarter" implies sales that were held off so they'd include Vista. More specifically, those sales took place last quarter but because they included free upgrades to Vista they couldn't be posted until this quarter (see the recent overblown hoopla about Apple having to charge a small charge to enable a wireless update for a similar "accounting" problem).

The story here is that Vista sales effectively started last quarter so people did get new systems anticipating having Vista but also the fact that MS didn't have to post more sales into this quarter shows a continuing strength in XP sales.

Let the spinning begin... :)
Posted by extinctone (214 comments )
Link Flag
Now, according to the BBC
<a class="jive-link-external" href="http://news.bbc.co.uk/1/hi/business/6300675.stm" target="_newWindow">http://news.bbc.co.uk/1/hi/business/6300675.stm</a>

Who's right?
Posted by City_Of_LA (118 comments )
Reply Link Flag
bugs
There are still many bugs to work out before they have a finished product. Even then, I'll probably wait for SP2 to roll out before I upgrade.

<a class="jive-link-external" href="http://www.ashgilpin.com" target="_newWindow">http://www.ashgilpin.com</a>
<a class="jive-link-external" href="http://www.eyepinch.com" target="_newWindow">http://www.eyepinch.com</a>
Posted by ashgilpincom (30 comments )
Reply Link Flag
What about all the PC Partners of MS?
THEY lost money over the 2006 holidays due to the "once again
delayed Longhorn / AstalaVista OS " not being released until the
end of January 2007...

First Zune sticks the music MP3 partners in the back, now Vista
says, we're doing just fine at Redmond One, what's your problem
partners?

News Flash! Microsoft + Dell join to become the new "Apple" for
PC people... Vista only works on "our own" PCs...

Game over for HP PCs / Sony PCs / Lenovo PCs / Toshiba PCs /
Gateway PCs / etc. etc. etc...

Nooooooo we're not an illegal world wide monopoly. (not)
Posted by Llib Setag (951 comments )
Reply Link Flag
Sorry to blow your cover
..You can spin it any way you want. The fact is that MS profits did drop.

<a class="jive-link-external" href="http://www.msnbc.msn.com/id/16813736/" target="_newWindow">http://www.msnbc.msn.com/id/16813736/</a>

"The long-delayed launch of the Windows Vista operating system cut into fiscal second-quarter profits at Microsoft Corp., which reported a 28 percent drop in earnings Thursday despite revenue growth that exceeded forecasts."

"Even so, Microsoft?s ?client? division, responsible for Windows, posted a 25 percent drop in sales to $2.59 billion. And the business division, which includes Office, saw a 5 percent drop to $3.51 billion.

The falls were expected because Microsoft had warned it would be heavily deferring Windows and Office revenue from the second quarter to the current period. That was done to account for coupons that recent computer buyers got to let them upgrade their existing software to Vista and Office.

The deferrals trimmed $1.64 billion from Microsoft?s second-quarter revenue, and $1.13 billion, or 11 cents per share, from profits. If not for the deferrals, Microsoft said revenue would have leaped 20 percent in the quarter."

Check your facts before making stupid comments.
Posted by FutureGuy (742 comments )
Reply Link Flag
 

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