Microsoft earnings expected to rise

Microsoft Corp, the world's largest software maker, may be piquing investors' interest again after languishing since January.

Sales of Halo 3 games for the Xbox 360 console are topping company projections, and Microsoft is selling higher-priced versions of the Windows Vista operating system, increasing speculation that first-quarter profit beat analysts' estimates.

"Coming off this quarter, I think Microsoft grinds up firmly into the 30s, and after the December quarter, it will move up again," said Sarah Friar, a Goldman, Sachs & Co analyst in San Francisco.

Microsoft rose 35 cents to $31.25 in NASDAQ Stock Market trading on Wednesday. The shares sold for $31.21 on January 12, following a 4.5 percent surge in the year's first two weeks of trading. They didn't exceed that level until July, when they reached a 2007 high of $31.84.

The software maker may say first-quarter earnings per share beat the 39-cent average estimate of 14 analysts surveyed by Bloomberg, according to Friar and Heather Bellini, an analyst at UBS AG in New York.

Microsoft will report earnings for the fiscal quarter ended September 30 after the close of US trading this morning Beijing time.

The company may say sales rose 16 percent to $12.6 billion, according to the Bloomberg survey. Bellini estimates sales may be $200 million more than the average estimate.

Microsoft spokesman Bill Cox declined to comment.

Restored rating

Microsoft said on Wednesday that it will buy a 1.6 percent stake in social-networking website Facebook Inc for $240 million and will sell ads for the Internet company overseas. The agreement values Palo Alto, California-based Facebook at $15 billion.

Goldman's Friar restored her "conviction buy" rating on the shares on October 16 after reducing them to a "buy" in April. At that time, she said, clients told her she should have cut it more. Now, she said, they are "worried they might miss a stock increase".

Twenty-five analysts suggest buying the shares, eight rate them "hold" and two recommend selling, according to data compiled by Bloomberg.

Chief Executive Officer Steve Ballmer boosted sales and profit with Halo 3, the latest installment of the top-selling Xbox game. In September, Xbox for the first time beat Nintendo Co's Wii console in monthly sales.

The space-alien shooting game brought in $300 million in its first week, double what Friar projected. That's enough to push the Xbox unit into profitability for the first time since the last version of Halo hit stores in 2004, Bellini said.

The more expensive versions of Vista and a new Office 2007 package also are spurring a larger than usual number of customers to renew three-year licensing agreements, according to Bellini, Institutional Investor magazine's top-rated software analyst.

Early disappointment

About 90 percent of her clients are underweight in Microsoft shares, said Bellini.

"Microsoft has been the first company clients asked about," lately, said Bellini, who rates the shares "buy". "It's usually the last."

After its wide release in January, Vista disappointed investors by its failure to produce a faster increase in revenue.

Persuading PC makers for three quarters to offer the higher-priced Vista Home Premium, which brings in $50 more per copy than Vista Basic, may change investors' minds, according to Bellini.

Microsoft doesn't disclose the prices paid by PC makers.

More than 70 percent of Vista copies sold in the quarter were the pricier versions, she estimated.

Bloomberg News

(China Daily 10/26/2007 page16)