AP
Microsoft 2Q Profit Tops Expectations
Thursday January 24, 6:28 pm ET
By Jessica Mintz, AP Technology Writer
Microsoft 2Q Profit Up 79 Percent, Helped by Windows Sales


SEATTLE (AP) -- Microsoft Corp. said Thursday its fiscal second-quarter profit topped analysts' expectations and climbed 79 percent, buoyed by rising sales of Windows-based personal computers.

For the quarter ended Dec. 31, profit increased to $4.71 billion, or 50 cents per share, from $2.63 billion, or 26 cents per share last year.

Analysts polled by Thomson Financial had forecast a profit of 46 cents per share.

Revenue rose 31 percent to $16.37 billion from $12.5 billion in the year-ago quarter, ahead of the analysts' prediction of $15.95 billion in sales.

"It looks like a very nice report, said Sarah Friar, an analyst for Goldman Sachs, in an interview. She pointed to Microsoft's improved profitability, due to better-than-expected results in two high-margin areas, software for businesses and Xbox 360s.

The quarter looked particularly good compared with the same period a year earlier, when the software maker deferred more than $1 billion in revenue due to delays in getting Windows Vista to consumers.

Microsoft's client division, responsible for Vista, posted revenue of $4.34 billion. The company said it has sold 100 million copies of Vista since its January 2007 launch.

The business division, which includes Office, brought in $4.81 billion in sales.

Worldwide PC sales in the second quarter -- 13.1 percent compared with last year, according to research group Gartner Inc., better than Microsoft's forecast for 10 to 12 percent -- helped both divisions.

Sales from the division responsible for the Xbox 360 game console and the Zune digital media player edged up 3 percent to $3.06 billion. But the division swung to a profit of $357 million from a loss of $302 million last year, and Microsoft said the division is still on track to be profitable in fiscal 2008.

Revenue from Microsoft's online services business, comprised mainly of online advertising 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 business aQuantive Inc.

Troubles in the U.S. economy have not affected earnings in the tech sector overall. But Chief Financial Officer Chris Liddell said Microsoft isn't immune to a possible recession.

"We will be impacted just like everybody else," Liddell said in an interview. But Microsoft is optimistic about the second half of fiscal 2008, he said, noting that more than 60 percent of its revenue came from outside the U.S.

Friar, the analyst, warned that economic pressure is pushing corporations to budget less for information technology in 2008.

Microsoft's guidance for the coming year matched Wall Street's view. For the fiscal third 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.

For the full year, it raised its guidance 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.

Wall Street expects earnings of $1.81 per share on sales of $59.34 billion for the year and a profit of 44 cents per share on $14.43 billion in revenue for the third quarter.

Shares of Microsoft rose $1.54, more than 4.5 percent, in extended trading, after gaining $1.32, or 4 percent, to close the regular session at $33.25.