Microsoft Tops Street in 2Q; PC Sales Up
Microsoft Corp. forecast a rosy 2008 -- despite broader economic worries --
after it blew by Wall Street's expectations for a second consecutive quarter.
"We will be impacted just like everybody else," if the U.S. falls
into a recession, Chief Financial Officer Chris Liddell said Thursday. "But
overall, we feel very optimistic about our second half."
Company officials touted rising sales in each of Microsoft's business divisions,
a slate of important upcoming business-software launches and the growing contribution
from sales in non-U.S. markets.
Microsoft raised its outlook Thursday for the rest of its fiscal year, which
ends in June, matching Wall Street's forecast and sending shares up in after-hours
The software maker's quarterly earnings jumped 79 percent to $4.71 billion,
or 50 cents per share, from $2.63 billion, or 26 cents per share in the second
quarter a year earlier. Quarterly revenue climbed 31 percent to $16.37 billion
from $12.5 billion.
The comparison isn't entirely fair -- last year, Microsoft deferred more than
$1 billion in revenue due to delays in getting Windows Vista to consumers.
Wall Street had been looking for a profit of 46 cents per share on $15.95 billion
Better-than-expected worldwide PC shipments, tougher anti-piracy measures and
growing numbers of businesses switching to long-term volume software licenses
helped boost revenue for the two Microsoft divisions responsible for Windows
and Office to a total of $9.14 billion, 50 percent more than a year ago.
The division responsible for the Xbox 360 video game system swung to a profit
on rising sales of games and accessories, which deliver better margins than
the console itself. Microsoft said the division is still on track to be profitable
in fiscal 2008.
The weakest spot was Microsoft's online services business, which competes with
Google Inc. to sell advertising on the Web. Sales rose 38 percent, but the division
widened its loss in the quarter to $245 million, from $118 million a year ago,
dragged down in part by its acquisition
of online ad company aQuantive Inc.
"Think about the revenue several years out and the infrastructure we're
building for that," Liddell advised financial analysts in a conference
In the back half of the fiscal year, Microsoft is set to release new versions
of a number of key franchises, including Microsoft Server 2008 and the SQL Server
2008 database system. Liddell said he also expects PC shipments to remain strong,
driving sales of Windows Vista and Office.
"It looks like a very nice report," said Sarah Friar, an analyst
for Goldman Sachs, in an interview.
While economic jitters haven't hit tech companies yet, Friar warned that information
technology executives are shaving their 2008 budgets and may buy less from Microsoft.
The company makes more profit from its business licenses than on sales to consumers,
Microsoft nevertheless boosted its full-year outlook and now predicts a profit
of $1.85 to $1.88 per share on sales of $59.9 to $60.5 billion. Earlier, the
company forecast earnings of $1.78 to $1.81 per share on $58.8 billion to $59.7
billion in sales.
For the current quarter, which ends March 31, Microsoft said it expects to
earn 43 to 45 cents per share on $14.3 to $14.6 billion in revenue.
Shares of Microsoft jumped 5 percent, or $1.69, to $34.94 at the open of trade