by millionairemind » Fri Jul 18, 2008 7:40 am
Microsoft's Profit, Sales Jump
But Outlook Fails to Impress
By JESSICA HODGSON and ANDREW EDWARDS
July 17, 2008 5:36 p.m.
Microsoft Corp.'s fiscal fourth-quarter profit surged from a year-ago period that was weighed down by Xbox-related charges. Revenue rose 18% as the company continued to benefit from demand for PCs despite a gloomy U.S. economy.
However, bottom-line results and guidance for the current quarter came up short of what analysts had predicted, amid weaker than expected sales of business applications, sending shares down more than 5% after-hours.
The software giant reported net income for the quarter ended June 30 of $4.3 billion, or 46 cents a share, compared with $3.04 billion, or 31 cents a share, a year earlier. Revenue climbed 18% to $15.84 billion.
The core business is doing quite well, but Microsoft is being impacted by the economic environment," said Andy Miedler, an analyst with Edward Jones. He expects Microsoft shares to remain weak in the medium term, against a weaker economic outlook and with the company's ongoing battle to acquire some or all of Yahoo Inc. remaining a concern for investors.
Charly Tracey, Microsoft's director of investor relations, said Thursday that lower than expected earnings per share were largely a result of strong hiring, and higher than expected investment in the company's online services business.
Sales at Microsoft's client division, which makes the Windows operating system, rose almost 15%, beating the Street's expectations and going some way to reassure investors following fears that sales of Vista, the latest incarnation of the Windows operating system, could be under pressure. Revenue at Microsoft's server and tools division, which saw significant product launches in the last year, rose 22%.
However, sales at Microsoft's business division, which makes the Office desktop applications, missed expectations, growing at around 14% against previous guidance that it would grow at around 16%. Analyst Jeff Gaggin, of Avian Securities, said the lower sales may prompt fears that Microsoft's Office products, which include word processing and spreadsheet tools, may be getting outdated.
In online services, one of Microsoft's smallest but potentially most important divisions, sales rose 24% but the unit still posted a loss of $488 million. Microsoft has been investing in its online services, including search and advertising, to gain ground on Google Inc. Microsoft's research and development spending grew 24% to $2.41 billion.
Looking forward, the company expects fiscal first-quarter per-share earnings of 47 cents to 48 cents on revenue of $14.7 billion to $14.9 billion, compared with Wall Street's view of 49 cents on revenue of $15.04 billion.
"Despite difficult economic conditions, we will build upon the momentum exiting fiscal year 2008 and expect to deliver another year of double-digit revenue and earnings growth in fiscal year 2009,'' Chief Financial Officer Chris Liddell said.
The software giant has also continued to rattle its saber at Yahoo, after calling off a take-over bid that began earlier this year. The company's Internet strategy - and by implication its failure so far to strike a deal with Yahoo - is expected to weigh on the stock long-term.
"If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he has been wrong" - Bernard Baruch
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