Tax break boosts Microsoft earnings

The software maker said that it earned $3.7 billion, or 34 cents per share, on revenue of $10.16 billion for its fiscal fourth quarter, which ended June 30. In the same quarter a year earlier, it posted earnings of $2.69 billion, or 25 cents per share, on revenue of $9.29 billion.

The earnings were boosted by a tax benefit that amounted to nine cents per share, but reduced by legal costs that added up to five cents a share.

Excluding those items, Microsoft would have had earnings of 30 cents per share. Analysts were expecting earnings, on that basis, of 28 cents per share, according to a poll of analysts First Call. Revenue was just shy of analysts' $10.17 billion average First Call estimate.

For the first quarter, the company forecasted it will earn between 29 and 31 cents per share on revenue of $9.7 billion to $9.8 billion. Analysts were expecting slightly higher revenue of $9.9 billion, according to First Call. For Microsoft's coming fiscal year, which stretches through June, Microsoft said it expects earnings between $1.27 and $1.32 per share, with revenue in the range of $43.7 billion to $44.5 billion.

There had been some speculation that the report might be particularly good, given some upbeat comments that CEO Steve Ballmer made at a partner conference, as well as a recent pay raise given to sales chief Kevin Johnson.

The report comes as investors are searching for some clues about the financial impact from new versions of Office and Windows, the company's two main products. The updates are both due next year, with a test version of Longhorn--the new Windows--due out this summer.

Microsoft's balance of unearned revenue, money that the company has received for contracts that stretch beyond the quarter, rose to $9.17 billion from $7.94 billion in the prior quarter. The figure is a closely watched indicator of the company's long-term prospects.

The company's legal charges of $756 million included $626 million related to its settlement with IBM.

Division results
As for Microsoft's individual units, the Client division, which includes desktop versions of Windows, saw fourth-quarter revenue rise 10 percent from a year earlier, to $3.03 billion. The unit recorded quarterly operating income of $2.18 billion, up 7 percent.

The Server and Tools group saw quarterly sales rise 16 percent from the prior year to $2.68 billion, with operating income up 32 percent to $800 million. The Information Worker unit, which includes Office, saw revenue in the period increase 3 percent to $2.91 billion, though its operating income declined 1 percent to just under $2 billion.

The Business Solutions unit, a smaller group that sells enterprise applications to midsized companies, saw its fourth-quarter sales rise 11 percent to $247 million, but its operating loss widened by 9 percent to $76 million year-over-year.

MSN saw revenue drop 1 percent to $582 million, but its operating profits more than tripled to $104 million compared with the same quarter last year.

The Home and Entertainment division, which includes the Xbox, posted a 22 percent increase in quarterly revenue to $610 million. In addition, it nearly halved its operating loss compared with the prior year, posting a loss of $179 million.

The Mobile and Embedded device unit, which includes software for cell phones and handhelds, saw its sales in the fourth quarter climb 39 percent to $97 million. The group posted a 64 percent narrower loss at $14 million.

The company also had corporate-level quarterly expenses of $1.82 billion, up 65 percent from a year earlier, primarily due to increased legal costs.

Microsoft's cash holdings of $37.75 billion were roughly flat from the prior quarter, as the company issued $859 million in dividends and repurchased common stock worth $4.31 billion.