The software giant said it earned $3.48 billion, or 35 cents a share, on revenue of $10.81 billion, for the three months ended Sept. 30. That compares with earnings of $3.14 billion, or 29 cents a share, on revenue of $9.74 billion for the same quarter a year ago. The year-ago earnings figure included legal expenses that amounted to 2 cents a share.
Microsoft said in June toin the range of $10.6 billion and $10.8 billion, with per-share earnings between 30 cents and 32 cents.
"The solid revenue results for the quarter were at the top end of our expectations," Chief Financial Officer Chris Liddell said in a statement.
Microsoft first quarter beats targets
Chief Financial Officer Chris Liddell gives a summary of the first-quarter results for the software maker.
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For the current quarter, Microsoft said to expect revenue of $11.8 billion to $12.4 billion and per-share earnings of 22 cents to 24 cents. The outlook is affected by the fact that Microsoft expects to defer $1.5 billion in revenue to account for ain which buyers of Office and Windows this holiday season will be able to upgrade to Office 2007 and Windows Vista when those products are released early next year. Microsoft said the revenue deferral will affect earnings in the quarter by about 11 cents a share.
Microsoft slightly tweaked its financial outlook for the full year, which runs through June 2007.
The company said it now expects revenue in the range of $50 billion to $50.9 billion and per-share earnings in the range of $1.43 to $1.46. In July, Microsoft had said to expect revenue between $49.7 billion and $50.7 billion and diluted earnings per share between $1.43 and $1.47. That included a boost in spending as the company invests in both the launch of Vista and Office 2007, as well as in its online and other emerging businesses.
Microsoft said earnings and sales were boosted by strong responses to the products that Microsoft has launched in recent months, including the Xbox 360 and SQL Server.
"We've had a really nice start to fiscal year 2007," Colleen Healy, Microsoft's general manager of investor relations, said in an interview. "Our businesses that had big product launches over the past 12 months were really the driver."
Microsoft saw gains in all of its business units except its online services unit, which saw its quarterly revenue dip to $539 million from $564 million a year earlier. It had a quarterly loss of $136 million, compared with a $68 million profit in the same quarter a year ago.
Sales in the unit that includes desktop versions of Windows climbed to $3.3 billion from $3.16 billion a year ago, while operating income rose to $2.64 billion compared with $2.57 billion a year ago. Microsoft's server software unit saw sales hit nearly $2.5 billion, up from $2.13 billion a year ago, while operating income was $827 million, up from $608 million a year ago.
The Microsoft Business Division, which includes Office, saw its sales climb to $3.43 billion from $3.28 billion, as operating income reached $2.25 billion, up slightly from the $2.24 billion recorded in the year-ago quarter. Microsoft's Entertainment and Devices unit saw sales hit $1.03 billion, up from $606 million, while the unit's operating loss narrowed to $96 million, down from $103 million a year earlier.
Microsoft shares dipped slightly in after-hours trading following the earnings release. Shares were trading at $28.28, down 7 cents, or less than 1 percent, after inching up 4 cents during regular trading Thursday. In mid-June, shares were around $21.50.
Healy said that Microsoft also saw good "bookings" in the quarter, referring to the company's sales of software under longer-term contracts. The company saw its balance of unearned revenue dip to $10.1 billion from the prior quarter, when it was $10.9 billion.
"It was actually down less than we had expected, which I think speaks to the strength and excitement for the pending launches," Healy said. Microsoft is not changing the timeframe for the launch of Vista and Office.next month and have a broad launch in January, while Office 2007 is slated to be available to volume license customers by the end of the year and hit retail shelves in "early 2007."
"The teams continue to feel they are on track," Healy said. "We're monitoring feedback from our partners and beta testers closely."