For the three months ended Dec. 31, Microsoft earned US$1.55 billion, or US$0.14 per share, on record revenue of US$10.15 billion. The earnings figure included US$0.20 per share to cover the cost of stock-based compensation, including a US$0.14 one-time charge for the cost of a program that allowed employees to sell their underwater stock options.
In the same quarter a year earlier, Microsoft had earnings, after charges, of US$1.87 billion, or US$0.17 per share, on revenue of US$8.54 billion.
Excluding the compensation-related expenses, the company was expected to earn US$0.30 a share on revenue of US$9.74 billion, according to the average of estimates compiled by Thomson First Call. In October, Microsoft forecast revenue in the range of US$9.7 billion to US$9.8 billion, with earnings, excluding compensation charges, of about US$0.30.
"Consumer and corporate demand for PCs continued to exceed our expectations and resulted in solid double-digit revenue growth for Windows XP and Office products," Microsoft CFO John Connors said in a statement. "In the second quarter, the overall corporate IT market also began to show signs of a recovery, with increased demand for both desktop and server products."
Although Microsoft's most recent sales were ahead of forecasts, the company saw another drop in its level of unearned revenue, which is derived from long-term contracts. At the end of December, Microsoft had US$7.85 billion in such collections, down from US$8.25 billion at the end of September. The US$400 million drop was steeper than some analysts had forecast, though not as steep as the drop the company saw in the prior quarter.
Microsoft shares fell slightly in after-hours trading, changing hands recently at US$27.49 on the Island ECN. In regular trading ahead of the earnings report, the shares closed at US$28.01, down US$0.29, or slightly more than 1 percent.
For the current quarter, Microsoft predicted per-share earnings of US$0.23 or US$0.24, including US$0.05 for stock-based compensation expenses, with revenue expected to be between US$8.6 billion and US$8.7 billion. That's ahead of current analyst expectations, which called for per-share earnings, before compensation expenses, of US$0.27 and revenue of US$8.4 billion.
In the quarter ended in September, the company posted better-than-expected earnings but saw a steep drop in long-term contracts amid worries about security.
Microsoft did hike its revenue forecast for the full year, projecting sales of between US$35.6 billion and US$35.9 billion, up from a previous estimate of US$34.8 billion to US$35.3 billion. The company also forecast an increase in per-share earnings, excluding the costs of stock-based compensation.
The company now expects per-share earnings in the range of US$0.82 or US$0.83, including US$0.35 worth of stock-based compensation charges. In October, the company expected per-share earnings of between US$0.86 and US$0.88--including US$0.24 per share in stock compensation charges.
While much of the company's sales growth came from an improved PC market, the company said it also saw some benefit from the weak dollar, which boosted revenue from Europe and Japan. Had the rates from the prior yearís second quarter been in effect in the most recent quarter, Microsoft said sales would have been approximately US$312 million lower.
Microsoft said it expects PC sales to continue to grow. "For the full fiscal 2004, PC shipments are expected to grow at double-digit rates," the company said in its earnings release. "In the second half of the fiscal year, we expect PC market growth to be driven by both consumer and business demand for PCs. We believe the overall server hardware sector and IT spending outlook is improving."
In terms of Microsoft's business units, its Client business, which includes standard desktop and notebook versions of Windows, saw sales rise 21 percent from a year earlier, to US$3.06 billion.
The Server and Tools unit, which includes Windows Server and other server software, saw its revenue grew 21 percent, to US$2.13 billion. Sales for the Information Worker unit, which includes Microsoft Office and other software, grew 27 percent, to US$2.9 billion. Microsoft Business Solutions, which includes Microsoft's CRM software as well as products obtained in its Great Plains and Navision acquisitions, had revenue of US$190 million, a 41 percent increase from the same quarter a year earlier. The mobile and embedded unit had sales of US$63 million, up from US$38 million a year earlier.
The Home and Entertainment unit, which includes the Xbox and PC game units, was the only division to see a year-over-year drop in sales, with revenue falling 5 percent to US$1.27 billion.
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