Microsoft Lifted by Solid Sales of ‘Halo 2’
The success of the hit video game “Halo 2” pulled Microsoft Corp.’s home entertainment division into the black two years ahead of schedule and helped the world’s largest software company more than double its quarterly profit.
Microsoft said Thursday that it earned $3.46 billion, or 32 cents a share, as sales rose 7% to $10.8 billion in its fiscal second quarter, which ended Dec. 31. Net income of $1.55 billion was dragged down by $1.5 billion in expenses as the company changed its stock compensation for employees.
“Halo 2” sold 6.3 million copies over the holidays, bringing in $300 million. The entertainment division, the game’s producer, posted operating income of $126 million -- compared with a $213-million loss a year earlier.
Shares of Redmond, Wash.-based Microsoft gained 10 cents to $26.11 on Nasdaq before the earnings report was released. Microsoft climbed another 46 cents in after-hours trading.
“Overall, the results look pretty good,” said analyst Rick Sherlund of Goldman Sachs & Co.
Investments in newer businesses are paying off, executives said, as the smallest four of Microsoft’s seven divisions generated $244 million in operating profit, reversing a year-earlier loss of $150 million.
The three biggest divisions had a combined operating profit of $5.44 billion.
The four smallest units have historically weighed down the results for the company’s Office and Windows divisions, which dominate the markets for productivity software and personal computer operating systems. But those divisions have been reporting slower growth.
Second-quarter sales of personal computers increased 12% -- about a third more than expected -- and pulled Windows revenue up 5%, the company said, while revenue for Office software fell 4%. Sales of the company’s software for running networks of machines rose 18%.
The surge in game sales more than made up for a drop in PC-based games and in Xbox console revenue. The entertainment division’s overall revenue increased 17% to $1.42 billion and inspired the company to raise its entertainment forecast for the rest of the year.
“We nearly beat our full-year console shipment target six months early,” said Curt Anderson, Microsoft’s investor relations manager. But he warned that sales would be slower coming out of the holiday season, leaving the unit unprofitable in the next six months. Steady profit isn’t expected before 2007, he said.
The four smallest divisions -- which make software for everything from cellphones to small businesses -- also will drop back into the red, said analyst Charles Di Bona of Sanford C. Bernstein & Co., whose parent firm owns Microsoft shares.
DiBona said he was impressed by the increase in paying subscribers to the multiplayer service Xbox Live, now numbering 1.4 million. “What’s interesting here is not the hit business, it’s not whether you have the hot toy or the hot movie. It’s whether you can get people looped in,” Di Bona said.
For the full fiscal year, Microsoft is now predicting sales of between $39.8 billion and $40 billion, slightly above previous expectations, with per-share earnings of $1.09 to $1.11.
Revenue from MSN Internet access fell 14% in the most recent period as consumers continue to move to broadband alternatives. And while ad sales were up, the company has decided to appeal to consumers by cutting back on the number of ads that appear alongside search results.
