Gifts Under $30 Gifts Under $50 iPhone Emergency SOS Saves Man MyHeritage 'Time Machine' Guardians of the Galaxy 3 Trailer White Bald Eagle Indiana Jones 5 Trailer Black Hole's 1,000 Trillion Suns
Want CNET to notify you of price drops and the latest stories?
No, thank you

Xbox shortage dings Microsoft sales

Strength in core businesses helps software maker meet earnings goals, but revenue is a little less than expected.

Microsoft on Thursday reported second-quarter earnings in line with Wall Street estimates, but revenue came in slightly less than expected amid component shortages for the Xbox 360.

The software maker said it earned $3.65 billion, or 34 cents per share, on revenue of $11.83 billion, for the three months ended Dec. 31. Earnings were boosted by a tax benefit that amounted to about a penny per share. That compares with earnings of $3.46 billion, or 32 cents per share, on revenue of $10.82 billion for the same quarter a year ago.

Listen up

In an earnings conference call Thursday, Scott Di Valerio, Microsoft's outgoing chief accounting officer, says sales of the game console were hindered by a dearth of components.
Listen now... (626KB mp3)

Analysts had anticipated earnings of 33 cents per share on revenue of $11.96 billion, according to First Call. Microsoft said in October to expect revenue of $11.9 billion to $12 billion and per-share earnings of 32 cents or 33 cents.

Shares in the company rose slightly in after-hours trading, changing hands recently at $26.93, up 43 cents, or 1.6 percent from Thursday's closing price.

Microsoft said it saw strong PC demand during the quarter.

The company blamed the revenue miss on component shortages for the Xbox 360, which launched during the quarter. MSN also came in slightly below expectations, though results for the company's server and tools unit were better than expected. The Windows client unit and the Office business largely met expectations.

"Overall revenue did come in slightly below expectations, mostly driven by our home and entertainment unit," said Colleen Healy, a senior director at Microsoft. "We did have some component shortage issues that we believe are behind us."

Microsoft said it sold 1.5 million Xbox consoles during the holiday quarter: 900,000 in North America; 500,000 in Europe, the Middle East and Africa; and 100,000 in Japan.

"This was lower than we expected due to component shortage," Chief Accounting Officer Scott Di Valerio said on a conference call with analysts. "We believe this is a short-term manufacturing challenge."

Listen up

Di Valerio sums up the software maker's performance and results for the first half of its fiscal year 2006.
Listen now... (947KB mp3)

Microsoft also cut its forecast for Xbox 360 sales over the first 90 days. The company had hoped to sell as many as 3 million consoles over that time, but now expects just 2.5 million units, due to capacity constraints. Microsoft said it still expects to sell 4.5 million to 5.5 million of the game consoles by June.

The software giant also saw profitability, for the first time, in two of its emerging business units. "For the first time ever, the Microsoft Business Solutions and Mobile and Embedded were in the black," Healy said.

The business solutions unit, which sells business software for midsize companies, earned $10 million in operating income, while the mobile unit posted a $20 million operating profit.

Microsoft slightly raised its sales forecast for the full year, saying it now sees 11 percent to 12 percent growth, compared with an early forecast of 10 percent to 12 percent growth. "We're feeling better about our top-line growth," Healy said.

The company also had its biggest ever quarter for share repurchases, buying back more than $7.7 billion in stock. As a result, Microsoft saw a dip in its cash balance. The cash and short-term securities balance ended the quarter at $34.7 billion, down from $37.8 billion at the end of June.

For the current quarter, Microsoft said it sees things generally in line with analysts' forecasts. The software maker expects projected revenue of $10.9 billion to $11.2 billion, with per-share earnings of 32 cents or 33 cents. Analysts have been looking for per-share earnings of 33 cents and revenue of $10.99 billion.