AP
Microsoft 1Q Profit Beats Street
Thursday October 25, 6:54 pm ET
By Jessica Mintz, AP Technology Writer
Microsoft Profit Surges on Strong Sales of `Halo 3,' Windows and Office Suite


SEATTLE (AP) -- Microsoft Corp. said Thursday its fiscal first-quarter profit rose 23 percent as brisk sales of the new "Halo 3" video game, Windows and Office helped the software maker breeze past Wall Street's expectations.

Investors cheered, sending shares up from $31.99 to $35.16, about 10 percent, in after-hours electronic trading.

For the quarter ended Sept. 30, the software maker's profit climbed to $4.29 billion, or 45 cents per share, from $3.48 billion, or 35 cents per share, during the same period last year.

The results handily beat Wall Street's predictions. Analysts, on average, had forecast a profit of 39 cents per share, according to a Thomson Financial poll.

Revenue grew 27 percent to $13.76 billion from $10.81 billion in the year-ago quarter, beating analysts' forecast by more than $1 billion.

Microsoft has sold 85 million copies of the Windows Vista operating system since the newest operating system went on sale in January -- and 25 million since the end of July -- according to Colleen Healy, general manager of investor relations for Microsoft.

The business unit responsible for Vista contributed $4.14 billion in revenue in the quarter, 25 percent more than a year ago.

Healy also said Microsoft booked 27 percent more annual license agreements for Windows than in the year-ago quarter, a sign businesses are committed to following Microsoft into the Vista era.

Sales from the unit that makes the Office 2007 software suite rose 20 percent to $4.11 billion.

Robust personal computer sales worldwide in the quarter boosted both operating system and productivity software sales, but Healy said those divisions also benefited from customers choosing higher-priced premium versions of Vista.

Sales of the "Halo 3" video game and the Xbox 360 consoles it is played on pushed the company's entertainment and devices division to a profit of $165 million in the quarter -- the Xbox division's second time in the black. Revenue rose to $1.93 billion, including $330 million from "Halo 3," nearly twice last year's quarterly sales. In a conference call, Microsoft said it sold 1.8 million Xbox 360 consoles in the quarter.

But in the crucial holiday shopping quarter, Microsoft isn't expecting continued growth from this division, which also recently launched a new line of Zune digital media players.

Chief Financial Officer Chris Liddell forecast in a conference call Thursday that the division's revenue would be flat to down 8 percent from last year.

The division responsible for online advertising posted a loss of $264 million, hurt by the company's acquisition of aQuantive in the quarter, as well as heavy investments in Web search, premium content and data centers.

"This is a competitive space," Healy said. "If you want to play right now, you're in investment mode."

With help from aQuantive, Microsoft's online ad revenue grew 33 percent in the quarter; without aQuantive's $80 million contribution, Microsoft's ad revenue would have improved 25 percent.

Microsoft raised its guidance for the fiscal year, saying it expected to earn $1.78 to $1.81 per share on revenue of $58.8 billion to $59.7 billion. Earlier, the company predicted it would earn $1.69 to $1.73 per share on $56.8 billion to $57.8 billion in sales.

Shares of Microsoft gained 74 cents, or 2.4 percent, in regular trading Thursday to close at $31.99.

http://www.microsoft.com