Friday, January 28, 2005
January 28, 2005
Windows, Boxes and a Halo Bolster Microsoft ProfitBy LAURIE J. FLYNN
icrosoft posted solid growth in quarterly sales and profit yesterday, buoyed by strong holiday sales of personal computers and video games.
Microsoft, the world's largest software company, said sales for the second quarter rose 7 percent, to $10.82 billion, surpassing the $10.55 billion average of Wall Street analysts' estimates.
"This was yet another excellent quarter," said John Connors, chief financial officer at Microsoft. "In general, the economic environment is healthy."
Microsoft earned 32 cents a share during the quarter on profit of $3.46 billion. That compares with a profit of 14 cents a share, or $1.55 billion, in the year-earlier period, when the company took a $2.21 billion charge for an employee stock-option exchange program. Excluding a stock-based compensation expense in the latest quarter, Microsoft said, it had a profit of 35 cents a share, beating analysts' forecast of 33 cents.
Shares of Microsoft, which reported its results after the close of regular trading, rose 10 cents, to close at $26.11, then rose as high as $26.60 in after-hours trading.
Some of Microsoft's new businesses did well, including its home and entertainment division, which posted its first profit. Sales in that division were led by Halo 2, a science-fiction video game featuring a genetically enhanced "supersoldier," which helped turn Microsoft's Xbox into the best-selling game console on the market during the holidays. The company said it had sold more than six million copies of the game since it was released in November.
Over all, the games unit had a profit of $84 million, in contrast to a loss of $397 million in the year-earlier period. Mr. Connors warned that the company did not expect the business to continue to post a profit this year, though it is on track to reach sustained profitability in 2007.
Most of the company's traditional businesses also posted strong sales, which company executives attributed to an increase in sales of personal computers and servers. Revenue from the Windows operating system division increased 5.3 percent, to $3.22 billion.
But the brightest spot was Microsoft's server and tools business, which grew 18 percent during the quarter, to $2.52 billion from $2.15 billion a year earlier. "The world is buying a heck of a lot of servers," Mr. Connors said.
Revenue from the SQL Server product alone grew 25 percent, indicating that Linux, a free open-source operating system used to run many servers, is posing less of a threat to Microsoft's corporate business than people may think.
"Linux is an issue, but it's not the Microsoft killer it's made out to be," said Charles J. Di Bona, an analyst with Sanford C. Bernstein & Company. "They're holding their own."
Analysts said the gains in Microsoft's server business indicated a strengthening corporate market. "It's a good sign of demand for enterprise PC's," said Gene A. Munster, an analyst at Piper Jaffray.
Mr. Munster described the quarter as solid, but said Microsoft still faced the considerable challenge of being a mature technology company. Successes like Halo 2, for example, "don't come around every quarter," he said.
The company's MSN Web sites had a profit of $130 million during the quarter, after losing $95 million a year earlier. Mr. Connors said that advertising revenue was increasing for the MSN business, but that the gains were offset by a decline in revenue from Internet access fees as customers move toward higher-speed broadband access. Revenue rose 7.7 percent, to $588 million.
Analysts characterized the quarter as strong, though some cautioned that the success of Halo 2 was a one-time event. Still, the company posted solid gains in major businesses, most notably Windows, which accounts for the majority of its revenues.
Microsoft raised its forecast for the full year. The company now expects to earn $1.09 to $1.11 a share, up from its previous forecast of $1.07 to $1.09. Revenue is now expected to be $39.8 billion to $40 billion.
For the third quarter, Microsoft predicts earnings of 27 cents to 28 cents a share on revenue of $9.7 billion to $9.8 billion, in large part on improvements in corporate spending.
Mr. Connors said Microsoft expected PC shipments to increase 9 percent to 11 percent during the rest of 2005, up from an earlier forecast of 8 percent to 10 percent.
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Windows, Boxes and a Halo Bolster Microsoft ProfitBy LAURIE J. FLYNN
icrosoft posted solid growth in quarterly sales and profit yesterday, buoyed by strong holiday sales of personal computers and video games.
Microsoft, the world's largest software company, said sales for the second quarter rose 7 percent, to $10.82 billion, surpassing the $10.55 billion average of Wall Street analysts' estimates.
"This was yet another excellent quarter," said John Connors, chief financial officer at Microsoft. "In general, the economic environment is healthy."
Microsoft earned 32 cents a share during the quarter on profit of $3.46 billion. That compares with a profit of 14 cents a share, or $1.55 billion, in the year-earlier period, when the company took a $2.21 billion charge for an employee stock-option exchange program. Excluding a stock-based compensation expense in the latest quarter, Microsoft said, it had a profit of 35 cents a share, beating analysts' forecast of 33 cents.
Shares of Microsoft, which reported its results after the close of regular trading, rose 10 cents, to close at $26.11, then rose as high as $26.60 in after-hours trading.
Some of Microsoft's new businesses did well, including its home and entertainment division, which posted its first profit. Sales in that division were led by Halo 2, a science-fiction video game featuring a genetically enhanced "supersoldier," which helped turn Microsoft's Xbox into the best-selling game console on the market during the holidays. The company said it had sold more than six million copies of the game since it was released in November.
Over all, the games unit had a profit of $84 million, in contrast to a loss of $397 million in the year-earlier period. Mr. Connors warned that the company did not expect the business to continue to post a profit this year, though it is on track to reach sustained profitability in 2007.
Most of the company's traditional businesses also posted strong sales, which company executives attributed to an increase in sales of personal computers and servers. Revenue from the Windows operating system division increased 5.3 percent, to $3.22 billion.
But the brightest spot was Microsoft's server and tools business, which grew 18 percent during the quarter, to $2.52 billion from $2.15 billion a year earlier. "The world is buying a heck of a lot of servers," Mr. Connors said.
Revenue from the SQL Server product alone grew 25 percent, indicating that Linux, a free open-source operating system used to run many servers, is posing less of a threat to Microsoft's corporate business than people may think.
"Linux is an issue, but it's not the Microsoft killer it's made out to be," said Charles J. Di Bona, an analyst with Sanford C. Bernstein & Company. "They're holding their own."
Analysts said the gains in Microsoft's server business indicated a strengthening corporate market. "It's a good sign of demand for enterprise PC's," said Gene A. Munster, an analyst at Piper Jaffray.
Mr. Munster described the quarter as solid, but said Microsoft still faced the considerable challenge of being a mature technology company. Successes like Halo 2, for example, "don't come around every quarter," he said.
The company's MSN Web sites had a profit of $130 million during the quarter, after losing $95 million a year earlier. Mr. Connors said that advertising revenue was increasing for the MSN business, but that the gains were offset by a decline in revenue from Internet access fees as customers move toward higher-speed broadband access. Revenue rose 7.7 percent, to $588 million.
Analysts characterized the quarter as strong, though some cautioned that the success of Halo 2 was a one-time event. Still, the company posted solid gains in major businesses, most notably Windows, which accounts for the majority of its revenues.
Microsoft raised its forecast for the full year. The company now expects to earn $1.09 to $1.11 a share, up from its previous forecast of $1.07 to $1.09. Revenue is now expected to be $39.8 billion to $40 billion.
For the third quarter, Microsoft predicts earnings of 27 cents to 28 cents a share on revenue of $9.7 billion to $9.8 billion, in large part on improvements in corporate spending.
Mr. Connors said Microsoft expected PC shipments to increase 9 percent to 11 percent during the rest of 2005, up from an earlier forecast of 8 percent to 10 percent.
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