Microsoft Earnings Climb 25%
Microsoft Corp. shrugged off a sluggish economy and cautious corporate spending to post higher profit and sales in the latest quarter, boosted by double-digit growth in its server software and an unexpected jump in online advertising in its MSN division.
The Redmond, Wash.-based software giant said Thursday that revenue grew 11% to $8.07 billion in its fiscal fourth quarter from $7.25 billion a year earlier. Net income jumped 25% to $1.92 billion, or 18 cents a share, in the quarter ended June 30, up from $1.53 billion, or 14 cents, a year earlier.
Excluding a $750-million charge to settle a lawsuit filed by AOL Time Warner Inc. concerning its Netscape Web browser, Microsoft earned 23 cents a share. Brokerage firms surveyed by Thomson First Call expected earnings of 24 cents a share.
For the year, Microsoft recorded sales of $32.2 billion, up from $28.4 billion in 2002. Profit of just under $10 billion in 2003 was up from $7.8 billion in 2002.
“It’s steady as she goes,” said Robert Austrian, an analyst for Banc of America Securities.
Microsoft stock lost 83 cents to $26.69 in regular Nasdaq trading but rose to $26.76 in after-hours trading. The company released its earnings after the market closed.
Microsoft stunned many in the technology and financial industries last week when it broke with its peers and announced it would stop giving employees stock options. Instead, the world’s biggest software maker said it would start giving workers a version of restricted stock that vests over five years.
At the same time, Microsoft said it would adjust previously reported income to account for existing options as an expense. A number of regulatory agencies are debating whether to require the expensing of options in the future, a step bitterly opposed by many high-technology firms.
Company Chief Financial Officer John Connors said the move is expected to cost Microsoft $3.9 billion, or about 24 cents a share, in the 2004 fiscal year. Much of that cost would come from expensing existing options, since few shares will have been awarded that year under the new policy, Austrian said.
The company left its dividend unchanged, disappointing some investors. The company has $49 billion in cash and has come under pressure to return some of that to shareholders, particularly now that Microsoft’s rapid growth has slowed and its stock is lagging behind the broader market. Its shares have risen 3.3% this year, compared with a 27% gain for the Nasdaq composite index.
Some analysts believe Microsoft will wait until its remaining legal concerns abate before it does something dramatic with its cash hoard.
Microsoft has settled antitrust lawsuits by the Justice Department, more than a dozen states and some statewide classes of consumers, all of which accused it of abusing its monopoly over PC operating systems.
Still pending are an antitrust investigation by the European Union, private lawsuits by competitors including Sun Microsystems Inc. and an appeal by the state of Massachusetts of the lower court order approving the settlement of the federal and state antitrust cases.
Connors forecast sales for the first quarter ending Sept. 30 of $7.9 billion to $8.1 billion, with earnings expected to be 23 cents a share.
For the current fiscal year, Connors said revenue would grow to $34.2 billion to $34.9 billion, and earnings would be 85 cents to 87 cents a share.
Key to Microsoft’s future is a shift to a new licensing model, in which companies can “rent” its software. Since the company began urging its larger customers to sign up for multiyear software subscriptions, it has been reporting some of the advance payments as income only as time lapses on the contracts.
At the end of the previous quarter in March, Microsoft had about $8.5 billion in unearned revenue on the balance sheet. That figure grew to $9 billion last quarter. Many analysts had expected that figure to drop as the company recorded some of the fees as revenue.
“That implies that they had a good quarter,” said Alan L. Davis, an analyst with McAdams Wright Ragen, an investment firm in Seattle that owns Microsoft stock but does not do business with the company.
Microsoft also posted an 8% growth in revenue in its entertainment division, which makes the Xbox video game console. It sold 5.5 million boxes its last fiscal year, boosting the total number to 9.4 million.
