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 US$2.63 billion, or 26 cents per share, on revenue of US$12.54 billion for the three months ended December 31, its second fiscal quarter. That compares with earnings of US$3.65 billion, or 34 cents per share, on revenue of US$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 US$11.8 billion to US$12.4 billion. Analysts had been looking for earnings of 23 cents per share on revenue of US$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, US$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 US$1.5 billion in deferred revenue. The company said the deferred revenue transates to about US$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 US$13.7 billion to US$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 US$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 US$50.2 billion to US$50.7 billion, with per-share earnings of US$1.45 to US$1.47. In October, the company had pegged full-year revenue in the range of US$50 billion to US$50.9 billion and per-share earnings in the range of US$1.43 to US$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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