The Wall Street Journal-20080125-Microsoft Net Surges With Help From Vista
Return to: The_Wall_Street_Journal-20080125
Microsoft Net Surges With Help From Vista
Microsoft Corp. offered a bullish forecast for its business in the coming months despite increasing signs of a weakening U.S. economy, following record earnings and revenue in the company's fiscal second quarter.
The Redmond, Wash., software maker said that, for the three months ended Dec. 31, sales of Windows Vista -- the latest version of its operating system -- helped lift revenue to $16.37 billion, a 30% increase from the year-earlier period. Net income rose 79% to $4.71 billion, or 50 cents a share, from $2.63 billion, or 26 cents a share, for the year-earlier quarter, which included deferral of some revenue and operating income from a coupon program.
Microsoft also raised its earnings forecast for the fiscal year ending June 30, saying that sales of its Office software suite and its videogames are better than previously expected. Microsoft now expects per-share earnings in a range of $1.85 to $1.88 for the year, compared with a forecast in October of $1.78 to $1.81. The company also said it now expects revenue in the range of $59.9 billion to $60.5 billion for the year. That compares with an October forecast of $58.8 billion to $59.7 billion.
Microsoft expects strong growth across its five major businesses in coming quarters, Microsoft Chief Financial Officer Chris Liddell said in an interview after announcing the results. "We feel optimistic going into the second half," he said. Mr. Liddell also said that Microsoft's geographical spread -- it generates approximately 60% of its revenue outside the U.S. -- will help it weather a downturn in the U.S. economy.
"For all of our businesses, clearly, there is a scenario where a slower economy could seep through to slower sales," Mr. Liddell said. "But our overall growth, we believe, is very healthy."
One root of his optimism, he said, was an unexpected $500 million jump in Microsoft's unearned revenue for the second quarter. That number refers to sales to mostly large businesses that were booked in the quarter but that will be recognized in coming quarters. Strong unearned revenue at Microsoft can indicate strong spending by businesses on technology.
Microsoft shares were up 5.3% to $35 in after-hours trading after closing at $33.25, up 4.13%, in 4 p.m. Nasdaq Stock Market trading Thursday.
Microsoft's results belie concerns about the tech sector sparked earlier this month when Intel Corp. -- another tech bellwether -- forecast a tougher business climate despite a surge in profit in the fourth quarter. Intel's shares dropped while disappointing earnings at other chip makers added to jitters about the broader economy. Apple Inc.'s forecast this week, meanwhile, raised concerns that sales of its iPod music players and Mac computers might slow in coming months, sparking a sell-off of its shares.
Microsoft's results offer evidence that Windows Vista is selling well despite concerns that negative reviews and some early problems with the software could slow sales. For the December quarter, Microsoft said sales at its client division, which makes the Windows software, rose 67% to $4.34 billion. Operating income at the group -- Microsoft's largest source of profit and revenue -- reached $3.36 billion in the quarter, an 83% jump from the same period a year earlier.
Mr. Liddell said that consumers who buy Microsoft's Xbox 360 videogame consoles are on average also buying a higher number of games -- a trend that helped the company's entertainment-and-devices division post a slight 3% increase in sales to $3.06 billion in the quarter. The group recorded operating income of $357 million, compared with a loss of $302 million in the previous year. Microsoft executives said the group is on track to post its first full-year profit ever.
Microsoft's troubles in online services grew in the quarter as losses widened -- to $245 million -- due in part to increased costs of data centers and expenses related to its $6 billion acquisition of aQuantive Inc., an online advertising specialist. Still, the acquisition helped buoy revenue at the online group in the quarter by 38% to $863 million, the company said.
Analysts polled by Thomson Financial had expected Microsoft to post earnings of 46 cents a share on revenue of $15.95 billion.
