October 26, 2006 1:51 PM PDT

Microsoft tops earnings forecast

Buoyed by sales of the Xbox 360 and server software, Microsoft reported first-quarter earnings on Thursday that edged ahead of the company's forecast.

The software giant said it earned $3.48 billion, or 35 cents a share, on revenue of $10.81 billion, for the three months ended Sept. 30. That compares with earnings of $3.14 billion, or 29 cents a share, on revenue of $9.74 billion for the same quarter a year ago. The year-ago earnings figure included legal expenses that amounted to 2 cents a share.

Microsoft said in June to expect revenue in the range of $10.6 billion and $10.8 billion, with per-share earnings between 30 cents and 32 cents.

"The solid revenue results for the quarter were at the top end of our expectations," Chief Financial Officer Chris Liddell said in a statement.

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Microsoft first quarter beats targets
Chief Financial Officer Chris Liddell gives a summary of the first-quarter results for the software maker.

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For the current quarter, Microsoft said to expect revenue of $11.8 billion to $12.4 billion and per-share earnings of 22 cents to 24 cents. The outlook is affected by the fact that Microsoft expects to defer $1.5 billion in revenue to account for a coupon program in which buyers of Office and Windows this holiday season will be able to upgrade to Office 2007 and Windows Vista when those products are released early next year. Microsoft said the revenue deferral will affect earnings in the quarter by about 11 cents a share.

Microsoft slightly tweaked its financial outlook for the full year, which runs through June 2007.

The company said it now expects revenue in the range of $50 billion to $50.9 billion and per-share earnings in the range of $1.43 to $1.46. In July, Microsoft had said to expect revenue between $49.7 billion and $50.7 billion and diluted earnings per share between $1.43 and $1.47. That included a boost in spending as the company invests in both the launch of Vista and Office 2007, as well as in its online and other emerging businesses.

Microsoft said earnings and sales were boosted by strong responses to the products that Microsoft has launched in recent months, including the Xbox 360 and SQL Server.

"We've had a really nice start to fiscal year 2007," Colleen Healy, Microsoft's general manager of investor relations, said in an interview. "Our businesses that had big product launches over the past 12 months were really the driver."

Microsoft saw gains in all of its business units except its online services unit, which saw its quarterly revenue dip to $539 million from $564 million a year earlier. It had a quarterly loss of $136 million, compared with a $68 million profit in the same quarter a year ago.

Sales in the unit that includes desktop versions of Windows climbed to $3.3 billion from $3.16 billion a year ago, while operating income rose to $2.64 billion compared with $2.57 billion a year ago. Microsoft's server software unit saw sales hit nearly $2.5 billion, up from $2.13 billion a year ago, while operating income was $827 million, up from $608 million a year ago.

The Microsoft Business Division, which includes Office, saw its sales climb to $3.43 billion from $3.28 billion, as operating income reached $2.25 billion, up slightly from the $2.24 billion recorded in the year-ago quarter. Microsoft's Entertainment and Devices unit saw sales hit $1.03 billion, up from $606 million, while the unit's operating loss narrowed to $96 million, down from $103 million a year earlier.

Microsoft shares dipped slightly in after-hours trading following the earnings release. Shares were trading at $28.28, down 7 cents, or less than 1 percent, after inching up 4 cents during regular trading Thursday. In mid-June, shares were around $21.50.

Healy said that Microsoft also saw good "bookings" in the quarter, referring to the company's sales of software under longer-term contracts. The company saw its balance of unearned revenue dip to $10.1 billion from the prior quarter, when it was $10.9 billion.

"It was actually down less than we had expected, which I think speaks to the strength and excitement for the pending launches," Healy said. Microsoft is not changing the timeframe for the launch of Vista and Office. Vista is expected to go to large business customers next month and have a broad launch in January, while Office 2007 is slated to be available to volume license customers by the end of the year and hit retail shelves in "early 2007."

"The teams continue to feel they are on track," Healy said. "We're monitoring feedback from our partners and beta testers closely."

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24 comments

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Xbox , and...
MS's press release states "Entertainment and Devices Division revenue growth of 70% over the prior year was driven by demand for Xbox 360" consoles, software, peripherals, and Xbox LiveĀ®. Xbox 360 has sold 6 million consoles worldwide life to date..."

Not bad, for the folks who will soon be bringing us the Zune.:-)

<a class="jive-link-external" href="http://www.microsoft.com/presspass/press/2006/oct06/10-26Q1FY07ERPR.mspx" target="_newWindow">http://www.microsoft.com/presspass/press/2006/oct06/10-26Q1FY07ERPR.mspx</a>
Posted by john55440 (1020 comments )
Reply Link Flag
Wow
if you read these forms on a regular basis you would think the whole world hated MS and they would be sinking very fast.

Good thing for MS this communist IT news site with its crazed Firefox/Mac/Linux/AMD fangirls are the minority:):)
Posted by Lindy01 (443 comments )
Reply Link Flag
Here here
I agree completely. The noisome MS haters on this site go beyond "religious". Well said !! ;)
Posted by aavera (3 comments )
Link Flag
wow is right
Yeah, software and communism has a lot in common.

The only thing constant is the ignorance of MS fans.
Posted by qwerty75 (1164 comments )
Link Flag
Google is catching up
Google recently overtook IBM for most valuable company. It is now positioned at no3 and will most likely overtake Cisco in no2 soon.

So it will be Microsoft then Google.

I can't wait for Google to overtake Microsoft. Microsoft has a commanding lead currently, but Google innovation will make sure that it will happen eventually.
Posted by t8 (3716 comments )
Reply Link Flag
What
does google really have? A search engine, ad space, free webmail and other apps???

Google makes alot of money on its add space but its not like they sell a server OS.

They are so much precieved wealth.
Posted by Lindy01 (443 comments )
Link Flag
Say again?!
Don't mistake market valuation with real value. Google has nothing compared with IBM and MS. IBM, HP are much bigger companies then Google will ever be. They only are old and Wall Street already know them for some time. MS can only hope to became like IBM in the next 20 years.
And what is exactly Google innovating on?
Posted by orfeu_niko (104 comments )
Link Flag
what?
Where exactly did you get that info?

Here's Forbes list of The World's 2000 Largest Public Companies

<a class="jive-link-external" href="http://www.forbes.com/lists/2006/18/06f2k_The-Forbes-2000_Rank.html" target="_newWindow">http://www.forbes.com/lists/2006/18/06f2k_The-Forbes-2000_Rank.html</a>

Microsoft is ranked 55 and IBM is ranked 22nd.

Google isn't even listed in the Top 100.

Google, while providing a great search engine, really provides nothing more than Ad space and free software. The bubble will burst soon enough when people realize they have nothing more to offer.

What exactly has Google innovated?
Posted by LikeLinus (5 comments )
Link Flag
...to no. 2, getting farer from no. 1.
If you can't wait for Google to overtake Microsoft, then let me tell you you'll much probably be well dead like me before that ever possibily happens. Microsoft has a huge commanding lead currently and earnin reports like these say it will continue to be so for a long long time.
Posted by Ryo Hazuki (378 comments )
Link Flag
Piracy is really hurting Microsoft.... Ha Ha Ha
Microsoft is always whining that priacy is destroying their company.

The earning show that the chief thief is really out of touch with reality.
Posted by crsteele (29 comments )
Reply Link Flag
Logic?
Your critical thinking skills need a bit of brushing up.

Because MS topped earnings forcasts and continues to make lots of money shows absolutely nothing about whether or not piracy is lowering their bottom line.

I'm not saying piracy does or doesn't affect their bottom line, but I am saying you should stop and think before you post.
Posted by KTLA_knew (385 comments )
Link Flag
Ha Ha Ha?
The fact that Microsoft has huge earning doesn't mean they don't suffer from piracy. Is it hard to understand for someone like you that is possible that if there was no piracy Microsoft's earning would be even bigger?
Posted by Ryo Hazuki (378 comments )
Link Flag
hmm
How much have they sunk into XBOX? Far more then any earnings gained thus far.

As for profits, does it matter? They still can't innovate, can't release secure products, or even treat their paying customers with respect.

MS is still irrelevant and their best days are far, far behind them.
Posted by qwerty75 (1164 comments )
Reply Link Flag
Irrelevant?
Err... how and why? How could anything that has 95% market share be irrelevant?
Posted by Andrew J Glina (1673 comments )
Link Flag
 

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