By Jerry A. DiColo and Jessica Hodgson, Dow Jones Newswires
Friday 23 October 2009
Shares boosted by strong demand for Windows, Xbox video game system.
Microsoft Corp.'s fiscal first-quarter earnings fell 18%, but strong presales of the company's new Windows 7 operating system and better-than-expected overall results added to the growing optimism about a consumer-driven technology recovery.
The news Friday sent Microsoft shares to their highest level since June 2008.
The results, a quarter after Microsoft's first fiscal year of declining sales as a public company, showed strong expectations for the just-launched Windows 7, demonstrated high demand for Microsoft's Xbox videogames and underscored that rigorous cost controls during the downturn had paid off.
One negative note in a broadly upbeat earnings statement: business spending on PCs, the engine of Microsoft's revenue and profit growth, has yet to make a comeback.
"Our strong performance is primarily as a result of two factors: consumer demand for Windows and Xbox, and excellent cost controls," Chris Liddell, Microsoft's chief financial officer, said on a conference call with analysts.
Microsoft reduced its full-year operating expense estimate by $300 million to $26.2 billion.
"2009 may well have been the bottom of the economic reset," he said, cautioning that there is still precious little evidence of a broader recovery in business PC sales.
Liddell said he expected sales of Windows 7 to consumers to be "very strong," but "the big variable in terms of rebound is going to be the strength and speed of the business PC rebound."
Microsoft's overall revenue declined for the third consecutive quarter, underscoring how the recession is still taking a toll on almost every part of its business. The company posted the first quarterly revenue decline in its 23-year history as a public company in April.
Despite the cautious tones, investors welcomed the results, pushing Microsoft's stock up as much as 10.4% to $29.35. The stock, in midday trading, was recently up 7.1% to $28.47.
"This is a strong endorsement of consumer recovery and also points to the stabilization of the Windows business," said Katherine Egbert, analyst with Jefferies & Co.
The slump in global PC sales and broad economic weakness have battered Microsoft's results over the past year, compounding already weakened demand for the unpopular Windows Vista operating system. On Thursday, the company moved to recharge revenue ...
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growth with the launch of Windows 7, its next-generation operating system.
After seeing revenue drops across all five of its businesses in the June quarter, Microsoft saw growth in the September quarter in its server and tools division, up 0.5%, while its entertainment unit remained roughly flat with last year.
Revenue for its Windows unit, Microsoft's largest division, dropped 39% from last year, and earnings for the division fell 52%; however, after stripping out the impact of the deferred revenue from the launch of Windows 7, revenue declined by around 4%, beating analysts' expectations.
"The stability in their Windows business for the first time in a year, and obviously the fact that they are able to defer a lot more Windows revenue going forward, bodes very well," Broadpoint AmTech analyst Yun Kim said."It was the first time in a year that it came in in line with consensus."
The deferred revenue from pre-sales of Windows 7 totaled $1.47 billion, exceeding Microsoft's estimate of about $1.2 billion. With deferred revenue, earnings would have been 52 cents a share.
For the quarter ended Sept. 30, Microsoft reported earnings of $3.57 billion, or 40 cents a share, down from $4.37 billion, or 48 cents a share, a year earlier. Revenue declined 14% to $12.92 billion. Analysts polled by Thomson Reuters had expected earnings of 32 cents a share on revenue of $12.37 billion.
In online services, a small but important division that includes Bing.com, revenue decreased 5.8% to $490 million, slightly below consensus estimates.
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Source:www.totaltele.com/view.aspx?ID=450109&Page=1
