The New York Times-20080125-Microsoft Delivers Strong Growth And Includes a Sunny Forecast
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Microsoft Delivers Strong Growth And Includes a Sunny Forecast
Microsoft reported quarterly sales and profit gains that surpassed Wall Street's expectations and delivered an optimistic outlook Thursday, suggesting that a weakening economy would not slow it down.
Microsoft's strong performance was led by its three major businesses: personal computer operating systems, office productivity programs and software that runs computers in corporate data centers. The company, the world's largest software maker, continues to struggle and lose money as it battles Google in its new markets for Internet services and online advertising.
But for Microsoft, that is a financial challenge of the future, one overshadowed by the heft and continuing growth in its personal computer products, led by the Windows Vista operating system and Office 2007. Microsoft's desktop software divisions accounted for 56 percent of the company's revenue and more than 80 percent of the operating profit of its product groups.
Microsoft's game console and software business, helped by the best-selling Halo 3 title, has become profitable for the first time.
Microsoft is still investing without much to show for it yet in the online business, but that is kind of nitpicking when you look at the results of the company over all, said Charles di Bona, a securities analyst for Sanford C. Bernstein & Company. The strong performance seems to be pretty much across the board.
Investors sent Microsoft's shares up 4 percent in after-hours trading Thursday. The shares closed the regular session at $33.25, up $1.32, or 4.1 percent, after being battered along with other technology stocks this week.
Other leading technology companies, like Intel and Apple, have reported strong quarterly results, only to have their shares punished after they warned of cloudy outlooks given the increasing possibility of an economic recession.
But Microsoft executives still sound confident. In a conference call with analysts, Christopher Liddell, Microsoft's chief financial officer, said, We have not seen any significant spillover for an economic slowdown in the U.S.
Sixty percent of Microsoft's business is now outside the United States, which helps insulate the company from the chill of a slowdown in the American economy. Even so, Mr. Liddell noted that Microsoft's sales in the American market in the last six months had grown at a healthy 15 percent clip.
For its 2008 fiscal year ending in June, Microsoft offered a bit more optimism. The company said revenue for the year would be $59.9 billion to $60.5 billion, above the analysts' consensus of $59.4 billion. Microsoft said its earnings would be $1.85 to $1.88 a share, up from Wall Street's projection of $1.81 a share.
For its second quarter, Microsoft reported net income of $4.7 billion, or 50 cents a share, a 79 percent rise compared with a year earlier. Analysts had predicted 46 cents a share.
The company reported revenue of nearly $16.4 billion, or 30 percent higher than in the year-earlier quarter. The consensus revenue estimate of securities analysts, as compiled by Thomson Financial, was $15.9 billion.
The percentage gains in sales and profits in the quarter were inflated by comparison with the year-earlier quarter, when Microsoft deferred $1.64 billion in revenue and operating income because of the delay in shipping Windows Vista and Office 2007.
It issued coupons and free upgrades to consumers and businesses that bought personal computers in the holiday season of 2006, allowing them to upgrade to Vista and Office 2007 later.
Yet after adjusting for the effect of last year's charge, Microsoft still had a stronger-than-expected performance, with revenue rising 15 percent and operating income up 27 percent.
Quarterly sales of the client group, which includes Windows Vista, rose 13 percent to more than $4.3 billion. The company's antipiracy programs, working in cooperation with local police in 22 nations, have been particularly effective in the last six months, Mr. Liddell said, representing 3 percentage points of the year-to-year growth.
The business division, which includes Office, reported sales of $4.8 billion, a 15 percent gain. Most of that comes from Microsoft's popular word-processing, spreadsheet and presentation programs. But Mr. Liddell noted that SharePoint, a program for collaboration by teams of workers, has grown to become a $1 billion-a-year product.
The entertainment and devices group, which includes the Xbox game consoles and video games, gained only 3 percent in sales, to $3.1 billion. But the year-ago quarter included a surge in revenue from the introduction of the Xbox 360. More significantly, the division reported a $357 million profit this year, compared with a $302 million loss a year ago, as Microsoft sold more games, which are solidly profitable.
The online services business grew 38 percent to $863 million, helped by the contribution of aQuantive, an online ad agency Microsoft bought last May for $6 billion. But losses more than doubled to $245 million.
