Microsoft earnings present a mixed bag

Software giant's first-quarter earnings are ahead of analyst estimates, though sales and forecasts fall short of expectations.

Ina Fried
Ina Fried Former Staff writer, CNET News
During her years at CNET News, Ina Fried changed beats several times, changed genders once, and covered both of the Pirates of Silicon Valley.
3 min read
Microsoft on Thursday reported first-quarter earnings just ahead of Wall Street estimates, though the company's sales and current-quarter forecast fell short of expectations.

The company said it earned $3.14 billion or 29 cents per share, on revenue of $9.74 billion for the three months ended Sept. 30, including the earnings hit caused by a settlement with RealNetworks. The results compare with earnings of $2.52 billion, or 23 cents per share, on revenue of $9.19 billion for the same quarter a year ago. The year-ago figures include a charge for Microsoft's settlement with Novell.

Excluding the cost of the RealNetworks pact, Microsoft would have had earnings of 31 cents per share. Analysts were expecting the company to post earnings of 30 cents per share, excluding the legal costs, but including stock-based compensation charges, on revenue of $9.78 billion, according to First Call. In July, Microsoft had forecast earnings of between 29 and 31 cents per share on revenue of $9.7 billion to $9.8 billion.

Microsoft CEO Steve Ballmer sounded an upbeat note in an e-mail to employees sent shortly after the earnings report.

"We're off to a great start this fiscal year as reflected in today's earnings announcement," he said in the e-mail.

Ballmer pointed to a flurry of upcoming product launches as well as some recent examples of customers choosing Windows over Linux, including a decision by RadioShack to choose Microsoft for its point-of-sale systems.

"Last quarter kicked off the first surge in a big wave of launches and news announcements," Ballmer said.

"We are optimistic about the company's future," said chief financial officer Chris Liddell, in a statement. Liddell also announced that the company plans to speed up its stock buyback program, with a goal of repurchasing the remaining $19 billion by December 2006.

However, the company offered an outlook for the current quarter that was below what some analysts were forecasting. Microsoft said it expects revenue of $11.9 billion to $12 billion and per share earnings of 32 cents or 33 cents.

Analysts had been expecting earnings per-share of 35 cents per share, on revenue of $12.29 billion, according to First Call.

For the just-ended quarter, Microsoft posted gains in sales and profits from its three main businesses--Windows client, server and tools, and Information Worker units. The Microsoft Business Solutions and Mobile units both posted narrower losses on increased sales, while the home and entertainment unit, which includes the Xbox, saw its sales slip and loss widen ahead of the Xbox 360 launch later this year. MSN posted slightly higher sales and operating profits.

Shares of Microsoft slipped in after-hours trading following the report, changing hands recently at $24.16, down more than 2 percent from their $24.85 closing price.

For the full fiscal year, which stretches through June 30, Microsoft said it expects revenue in the range of $43.7 billion to $44.5 billion and per-share earnings in the range of $1.26 to $1.30, including the two-cent charge for the RealNetworks settlement. That's roughly similar to the full-year outlook given by Microsoft three months ago.

Earlier Thursday, Microsoft announced it was promoting Bob Muglia to head its Server and Tools unit, the latest in a series of moves that follow its September decision to reorganize the company into three units.