Microsoft Edges Forecasts on Strong Software Sales

Microsoft Corp. slightly beat Wall Street expectations for its fiscal fourth quarter on a 10% jump in sales, offering a rare sign of encouragement as other technology companies continue to slump.

The world’s biggest software maker reported profit of $2.34 billon, or 43 cents a share, before the latest in a series of charges to write down the value of its investments. A year earlier, it earned $2.6 billion, or 47 cents, before similar charges.

Analysts had been expecting Microsoft to post per-share earnings of 42 cents on sales of $7.1 billion.

But revenue climbed to $7.25 billion instead, despite falling sales of personal computers powered by Microsoft’s flagship Windows operating system.

“The quarter was very solid, particularly considering the environment, and they’re largely sticking with their outlook, which is good,” said Banc of America Securities analyst Robert Austrian, who doesn’t own Microsoft shares.

Microsoft took a charge of $806 million from falling investments, mostly in telecommunications and cable companies.

Shares fell 89 cents to $51.11 in regular Nasdaq trading, then eased to $51 in after-hours trading following the earnings report. The broader market also fell.

For the fiscal year ended June 30, Microsoft net income rose to $7.8 billion from $7.3 billion as sales increased to $28.4 billion from $25.3 billion.

For the coming year, Microsoft slightly lowered its forecast, to earnings per share of between $1.85 and $1.91 on revenue ranging from $3.14 billion to $3.2 billion, up 11% to 13% from the year just ended.

The company’s performance was remarkable, analysts said, because sales increased even as shipments of personal computers fell for the first time since the mid-1980s. Windows is installed on the vast majority of PCs.

“We executed remarkably well,” said Microsoft Controller Scott Boggs. “I don’t think anyone imagined we would see a decline of 4%” in personal computer sales.

The results showed Microsoft is succeeding in pressing business customers to shift to new types of agreements allowing their employees to use Windows and the Office package of word-processing and spreadsheet software.

Many customers balked at the new terms, which require higher annual fees in return for upgrades and maintenance. Microsoft twice extended the deadline for joining the programs.

“Microsoft has done a very good job of leveraging their position with large businesses,” Austrian said. “This is their secret sauce.”

Overall sales of desktop operating systems increased 20% to $2.4 billion, boosted by the introduction last fall of Windows XP. And unearned revenue, which reflects money to be collected later under the long-term agreements, rose 59% from a year earlier. The company added $2 billion of such anticipated sales and now has a total of $7.7 billion, of which $6 billion should be collected in the new fiscal year.

Microsoft also spent more heavily in the fourth quarter than ever before to buy back its falling stock, acquiring $4.8 billion worth of shares.

Microsoft’s profitability was diminished by marketing expenses to launch Windows XP and the Xbox game console. Sales of the consoles also hurt the bottom line, because they sell for less than they cost to make.

Microsoft said it has sold 3.9 million Xbox consoles since they debuted in November, meeting the company’s lowered internal forecast of 3.5 million to 4 million units. The company had projected sales of as many as 6 million units, but revised estimates due to weak sales in Japan and Europe. A $100 price cut to $199 helped spur sales of the device.

Times staff writer Alex Pham contributed to this report.