Microsoft Reports 11% Rise in Profit

Times Staff Writer

Microsoft Corp. said Thursday that strong sales of Windows and software for businesses helped boost its fiscal first-quarter profit 11%.

But the world’s biggest software maker warned that future quarters might be hurt because fewer corporate customers were renewing some forms of long-term subscription deals.

Microsoft’s net income rose to $2.9 billion, or 27 cents a share, from $2.6 billion, or 24 cents, in the same quarter last year. Sales rose 12% to $9.2 billion.

“We are seeing customers take longer” to sign new agreements after old ones expire, Chief Financial Officer John Connors said. “Some revenue could be pushed back.” The percentage of sales coming from such contracts fell to 23% from 27% a year ago.

Microsoft shares, which rose 14 cents to $28.56 in regular Nasdaq trading, retreated to $28.10 in extended trading following the earnings announcement.


Connors and some industry analysts cautioned investors not to read too much into the drop in subscription renewals, noting that many of them remained Microsoft customers.

“It was a stunningly solid quarter,” said SG Cowen analyst Drew Brosseau, who owns no Microsoft shares. “They’re the biggest vendor in the business, and they continue to grow faster than anyone else.”

In the coming quarter, the Redmond, Wash.-based company said it expected revenue of $10.3 billion to $10.5 billion and earnings per share of 28 cents.

For its full fiscal year ending June 30, Microsoft increased projected revenue by $500 million, to between $38.9 billion and $39.2 billion, with earnings per share of $1.07 to $1.09.

First-quarter sales at the Microsoft division responsible for software managing multiple desktops, e-mail and other functions rose 19%, and operating profit jumped 84%, to $701 million.

Profit from the PC version of Windows rose 6% to $2.4 billon on a 7% sales increase.

Microsoft’s division for business software reported a 9% increase in sales, along with narrowed losses of $41 million.

At the MSN Internet access division, sales grew 10% and profit 35%, to $77 million.

In the home and entertainment division, which makes the Xbox console and associated games, sales increased 9% to $632 million and operating losses shrank 48% to $142 million.

The company said a record 1.5 million pre-orders had been placed for the game Halo 2, which is set to begin shipping Nov. 9.