Microsoft Posts Higher Profit, Issues Warning
Microsoft Corp. said Thursday that demand for its Windows operating system boosted fiscal first-quarter profit 24%, but said second-quarter earnings would trail Wall Street expectations.
The world’s largest software company also said that it didn’t expect a big jump in revenue during the current quarter from the highly anticipated Xbox 360 video game console, and that revenue would instead steadily increase as Microsoft worked to meet demand for the second-generation Xbox.
Microsoft earned $3.14 billion, or 29 cents a share, up from $2.53 billion, or 27 cents, in the same quarter a year earlier. Revenue for the quarter ended Sept. 30 rose 6% to $9.74 billion.
Excluding a legal settlement during the quarter, Microsoft earned 31 cents a share. Analysts surveyed by Thomson Financial had expected 30 cents with revenue of $9.78 billion.
“I thought revenue was a little light for the quarter,” said Michael Cohen, an analyst with Pacific American Securities. “But the bigger disappointment was the guidance.”
For its fiscal second quarter, operating profit is expected to be 32 cents to 33 cents on revenue of $11.9 billion to $12 billion. Analysts had expected 35 cents and $12.3 billion in revenue. The outlook sent Microsoft shares, which fell 26 cents to $24.85 in regular trading, down an additional 44 cents after hours.
The October-to-December quarter, traditionally strong because of holiday shopping, will see less of a bump in revenue from the upcoming Xbox 360 game console than investors expect, Chief Financial Officer Chris Liddell said on a conference call with analysts.
Xbox 360 is scheduled to go on sale Nov. 22 in the U.S., and in December in Europe and Japan.
Xbox supply won’t catch up to demand until the second half of the fiscal year, which ends June 30, Liddell said.
Liddell said the Redmond, Wash.-based software maker was intent on improving advertising revenue from MSN, the company’s Internet portal.
“Our search advertising revenue has not been as strong as we’d like,” Liddell said. “We expect improvements over time.”
Matt Rosoff, an analyst who follows Microsoft’s financials for the independent research firm Directions on Microsoft, said he didn’t see any “big surprises” in the earnings report but said Microsoft needed to increase ad revenue in the coming months to compete better against Google Inc. and Yahoo Inc.
“The thing they don’t talk much about is paid search where small advertisers can bid on keywords so their ads will appear in search results,” Rosoff said. “It’s really the most important component of search. That’s how you make money. They’re not there yet, which is why they’re trailing other Internet companies.”
For the full fiscal year ending June 30 Microsoft’s financials should be in line with analysts’ expectations, Liddell said, with operating earnings of $1.26 to 1.30 a share on revenue of $43.7 billion to $44.5 billion. Analysts’ consensus is $1.31 a share with revenue at $44.2 billion.
Liddell also announced that Microsoft would speed up its stock buyback plan and repurchase about $19 billion worth of shares by the end of next year. Microsoft had been buying back $2 billion in stock a quarter.
“We’re very confident about our growth outlook -- so confident that we announced today we’re accelerating our stock-buyback plans,” Chief Executive Steve Ballmer said in an e-mail to employees Thursday.
