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Microsoft Beats Estimates on Strong Business Sales

Thursday, 19 April 2012 04:35 PM

Microsoft Corp., the world’s largest software maker, reported fiscal third-quarter profit that topped estimates on better-than-expected sales of software for businesses.

Net income slipped to $5.11 billion, or 60 cents a share, compared with $5.23 billion, or 61 cents, a year earlier, Redmond, Washington-based Microsoft said today in a statement. Analysts had predicted an average 57 cents in profit, according to estimates compiled by Bloomberg. Sales rose to $17.4 billion, beating the $17.2 billion average projection.

Microsoft benefited from robust corporate purchases of Office productivity programs, Windows 7 operating systems, and software for servers and teleconferencing systems. The company plans later this year to release Windows 8, the newest version of its operating system, to help it win back consumers and narrow Apple Inc.’s lead in tablets.

“These are the kind of quarters that are tough to pull out, and the corporate demand is pulling them through,” said Pat Becker Jr., a fund manager at Becker Capital Management in Portland, Oregon, who owns Microsoft shares.

Microsoft shares climbed as much as 3 percent to $31.95 in extended trading after the report. The stock had eased less than 1 percent to $31.01 at the close in New York. It gained 24 percent in the three months through the end of March, the biggest quarterly increase since mid-2009, as investors grow more confident about the prospects for Windows 8.

Few ‘Catalysts’

“The back half of the year looks great, but there’s not a lot of catalysts right now,” Becker said.

Microsoft gave its first look at operating-cost projections for the fiscal year that starts July 1, saying expenses will be $30.3 billion to $30.9 billion. In the current year, expenses will be $28.3 billion to $28.7 billion, lower than a January forecast of $28.5 billion to $28.9 billion.

Expenses are under renewed scrutiny because Microsoft’s revenue growth is slowing, said Colin Gillis, an analyst at BGC Partners LP in New York, who recommends buying Microsoft shares.

Sales in the current fiscal year are expected to rise 6 percent, according to analysts, compared with 12 percent in fiscal 2011.

“It’s all about cost discipline because revenue growth isn’t great,” he said.

Unearned revenue, a measure of future sales, was $15.2 billion, above the $14.9 billion average estimate compiled by Bloomberg.

Business Buying

Microsoft said Windows division sales rose 4 percent to $4.62 billion, compared with the $4.2 billion average estimate of analysts surveyed by Bloomberg. Revenue in the Business division, mostly from Office software, rose 9.1 percent to $5.81 billion. Analysts on average had projected $5.6 billion.

The company attributed the increase in Windows sales to demand for Windows 7 software from enterprise customers. The increase in Windows sales was greater than the overall increase in PC shipments reported by Gartner Inc.

PC shipments were better than expected in the first quarter, according to market-research firm Gartner, rising 1.9 percent, instead of the 1.2 percent drop Gartner had forecast. The PC market is shaking off the impact of the European debt crisis and a disk-drive shortage resulting from last year’s flooding in Thailand.

Consumer Demand Weak

Still, Microsoft is facing weaker demand from consumers for personal computers with Windows, partially because some of them are opting to purchase Apple’s iPad. A new iPad went on sale last month and sold 3 million units in its debut weekend.

Microsoft probably won’t be able to alter that trend until Windows 8 ships, Chief Financial Officer Peter Klein said in January.

While the company has declined to say when Windows 8 will go on sale, people with knowledge of the matter said last month that Microsoft will finish work on the product this summer and put it on sale around October.

Prior to this quarter, Windows division sales have fallen short of analysts’ estimates in four of the past five periods.

Still, companies continue to upgrade to Windows 7 as they get rid of older software. About half are still on the 11-year old Windows XP, said Gillis. And firms are purchasing Office 2010, as well as Exchange e-mail software and the Lync product for teleconferencing and corporate instant messaging, said Rick Sherlund, an analyst at Nomura Equity Research, in a note last week.

© Copyright 2019 Bloomberg News. All rights reserved.

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Thursday, 19 April 2012 04:35 PM
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