April 26, 2007 1:34 PM PDT

Office, Vista launches boost Microsoft sales

In the first quarter to include consumer sales of Windows Vista and Office 2007, Microsoft reported earnings that topped Wall Street estimates.

Microsoft said Thursday that it earned $4.93 billion, or 50 cents per share, on revenue of $14.40 billion for the three months ended March 31. That compares with net income of $2.98 billion, or 29 cents per share, on revenue of $10.9 billion for the same quarter a year earlier.

The quarter's earnings were boosted by a 2 cent per share tax benefit and legal charges that dented per-share earnings by a penny. Excluding those items, the company would have posted earnings of 49 cents per share, ahead of the 46 cents that analysts were projecting, according to First Call.

In January, Microsoft said to expect revenue between $13.7 billion and $14 billion and per-share earnings of 46 cents or 47 cents.

Microsoft's revenue and profits included some money that was deferred from earlier quarters as part of a Vista upgrade program. The deferred money accounted for $1.67 billion in revenue and accounted for 12 cents per share in earnings.

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"This quarter marked the consumer launches of Windows Vista and the 2007 Microsoft Office system, and we are delighted with the positive customer response these products have received," Chief Operating Officer Kevin Turner said in a statement.

For the current quarter, Microsoft said it expects revenue to be in the range of $13.1 billion to $13.4 billion, with per-share earnings expected to be from 37 cents to 39 cents. Wall Street was projecting earnings of 40 cents a share on revenue of $13.31 billion, according to First Call.

Microsoft shifted some costs from the past quarter to this quarter, accounting in part for the fact the company's outlook is below what some analysts were expecting, Colleen Healy, Microsoft's general manager of investor relations, said in an interview.

The company also offered its first estimate for the new fiscal year, which begins in July. Microsoft said it expects revenue in the range of $56.5 billion to $57.5 billion, with per-share earnings in the range of $1.68 to $1.72. That's roughly in line with what many analysts had been projecting.

Microsoft said its online services business, which includes its MSN and Windows Live efforts, saw revenue grow 11 percent, with advertising revenue up 23 percent from a year earlier. Healy said Microsoft also saw, for the first time, its homegrown AdCenter ad-serving engine produce higher revenue per search than Microsoft had been getting when it used Yahoo's Overture service. Last quarter, Microsoft cut its outlook for the online business and said it was "not happy" with its search business results.

On the Xbox front, Microsoft said it sold 500,000 units. "We're just really delighted with where we are relative to the competition," Healy said.

PC sales for the industry grew about 1 percentage point more than Microsoft had been projecting, Healy said, with Office and Vista being well-received. "The reception they've received thus far really puts us off to a nice start."

Microsoft said that seven in 10 PCs shipped with a premium version of Windows in the quarter, as compared with about five in 10 under Windows XP. However, much of the shift was to Vista Home Premium, which carries far less extra profit, compared with Home Basic, than do Vista's business versions. All in all, the shift to higher-end versions of Windows accounted for 1 percentage point of the growth Microsoft saw in its sales of Windows for new PCs, Healy said on a conference call with analysts.

Microsoft told analysts it expects Vista to account for 85 percent of sales in fiscal 2008, with XP still amounting to 15 percent of sales. "We're optimistic, but we don't want to get ahead of ourselves," Healy said.

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29 comments

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Should read 'Office offsets Vista Losses'
The truth will never be revealed
Posted by Sniche (108 comments )
Reply Link Flag
You sound pretty foolish
You obviously know nothing about the business side of software! Vista development costs like any software business are sunk costs in previous quarters and years and they were all profitable for MSFT - so from here on out its a gravy train (all profit). As a publically traded company MSFT reports using SEC accepted accounting practices so what "truth" are you looking for?
Posted by Shakingmy head (48 comments )
Link Flag
You sound pretty foolish
You obviously know nothing about the business side of software! Vista development costs like any software business are sunk costs in previous quarters and years and they were all profitable for MSFT - so from here on out its a gravy train (all profit). As a publically traded company MSFT reports using SEC accepted accounting practices so what "truth" are you looking for?
Posted by Shakingmy head (48 comments )
Link Flag
Uh?
Can you elaborate?
Why do you say that?
Microsoft spent approximately 10 billion on the two products. So the money would be recouped with the sales of a few months.
Posted by herby67 (144 comments )
Reply Link Flag
Chalk one up for the gorilla
It still produces products that people buy regardless of all the naysayers. Good job MS.
Posted by jessiethe3rd (1140 comments )
Reply Link Flag
Chalk one up for the gorilla
It still produces products that people buy regardless of all the naysayers. Good job MS.
Posted by jessiethe3rd (1140 comments )
Reply Link Flag
Done wonders for Mac sales too
Up 36% (leading growth rate for pcs)

and apple stock over 100, where's MS stock (oh-yeah flatline)
Posted by weegg (849 comments )
Link Flag
Not by choice
But very few buy Microsoft products by choice. Either it's forced on
them or it's simply the default "choice."
Posted by chabig83 (535 comments )
Link Flag
How about Zune?
LOL. how quickly that little disaster disappeared from view, remember, the iPod killer? Speaking of the view, let's face it, no consumer is upgrading from XP to Vista. These sales are driven by new PC purchases with a much lower profit margin. Vista simply is not performing as XP did. Of course idiot CIO's will rush to upgrade their companies like the mindless little lemmings they are, that is to be expected. Office sales continue to be the real MS money maker driven mainly by the fact that most people do not realize that OpenOffice provides a superior product for free. And finally is a fact that new Mac user sales are up dramatically. With the introduction of the iPhone and AppleTV this trend will continue. Consumers want a quality product, not hyped MS crap (aka Zune, Vista, Office). In the end Apple will dominate consumer technology markets and MS will still make loads of dough in the much less imaginative corporate world.
Posted by expatincebu (156 comments )
Reply Link Flag
Is this the list you wish
for each night when you pray to the tooth fairy?

I would bet that 90% of MS OS sales come from corporations or home users buying new PC's....maybe even more. It has always been that way and always will.

You are freaking dreaming if you think that Apple will dominate consumer technology....you are living in a fantasy world. Dominating the digital media player market is one thing but they have less than 5% of the PC market, no gaming console market and a $600 phone that does not have 3G or cant have its batter replaced. Apple TV....hahahahahahah what a joke....the Xbox 360 will see more TV viewing than the Apple TV ever will.
Posted by Lindy01 (443 comments )
Link Flag
Smoking Crack?
The Zune is still selling - as popular as iPod? No, of course not - but that's just the thing - Microsoft often times does not make the most popular product. What you see in play4sure, however, is truely amazing. Why Apple sleeps on DRM and subscription music, Microsoft's partners; Urge, Yahoo, and Rhapsody are slowly making gains. Mindless lemmings? Sorry but plenty of organizations and switching to Vista... let's take for instance Citigroup - 50,000 PCs are moving to Windows Vista... mindless? Hardly. Apple? What's Apples #1 selling application? Microsoft Office 2004. Apple will not dominate the consumer market - they have less then 5% of the overall market to this day!
Posted by jessiethe3rd (1140 comments )
Link Flag
Smoking Crack?
The Zune is still selling - as popular as iPod? No, of course not - but that's just the thing - Microsoft often times does not make the most popular product. What you see in play4sure, however, is truely amazing. Why Apple sleeps on DRM and subscription music, Microsoft's partners; Urge, Yahoo, and Rhapsody are slowly making gains. Mindless lemmings? Sorry but plenty of organizations and switching to Vista... let's take for instance Citigroup - 50,000 PCs are moving to Windows Vista... mindless? Hardly. Apple? What's Apples #1 selling application? Microsoft Office 2004. Apple will not dominate the consumer market - they have less then 5% of the overall market to this day!
Posted by jessiethe3rd (1140 comments )
Link Flag
Is Apple at 4% yet?
Keep dreaming Sparky
Posted by kennybfine (6 comments )
Link Flag
Is Apple at 4% yet?
Keep dreaming Sparky. Keep hope alive
Posted by kennybfine (6 comments )
Link Flag
Is apple at 4% yet
keep dreaming Sparky
Posted by kennybfine (6 comments )
Link Flag
Is apple at 4% yet
Apple will never come close to Microsoft
Posted by kennybfine (6 comments )
Link Flag
Is apple at 4% yet
Apple will never come close to Microsoft
Posted by kennybfine (6 comments )
Link Flag
 

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