Microsoft earnings up on server sales
(AP)
Updated: 2005-10-28 20:02

Microsoft Corp. said earnings for its fiscal first quarter rose 24 percent, thanks in part to healthy server sales. But its sales outlook in the current quarter concerned some analysts and shares fell slightly Thursday.

Computers running the Microsoft Corp. Windows XP operating system are shown for sale Wednesday, Oct. 26, 2005 at a CompUSA store in Bellevue, Wash. Redmond, Wash.-based Microsoft is scheduled to report fiscal first quarter earnings after the market closes Thursday, Oct. 27, 2005. [AP]

For the quarter ended Sept. 30, the Redmond-based software maker earned $3.14 billion, or 29 cents per share, up from $2.53 billion, or 23 cents per share, in the same period last year.

The most recent results included a charge of 2 cents per share to account for a legal settlement with RealNetworks Inc. The results for the year-ago period included a one-time charge of $359 million, or 3 cents per share, to account for a legal settlement with Novell Inc.

Without the one-time charge, the company would have earned 31 cents per share. Analysts polled by Thomson Financial were expecting earnings of 30 cents per share on revenue of $9.78 billion.

Revenue for the quarter rose to $9.74 billion from $9.19 billion in the same period last year.

For the current fiscal second quarter ending Dec. 31, Microsoft said it expects to earn 32 cents or 33 cents per share, on revenue of between $11.9 billion and $12 billion.

The revenue figure is slightly below the current Wall Street consensus estimate of $12.29 billion, which analyst Charles Di Bona with Bernstein & Co. said is likely what sent shares lower in after-hours trading.

Microsoft shares fell 26 cents, or 1 percent, to close at $24.85 in trading Thursday on the Nasdaq Stock Market. The results were released after regular trading. In after-hours trading, shares were down an additional 40 cents.

In an interview with The Associated Press, Microsoft Chief Financial Officer Chris Liddell said he thought analysts were expecting bigger spikes in sales of the company's new Xbox 360 video game console and SQL Server, both of which are due out in November. But Microsoft expects to "see more of a ramp-up throughout the course of the year."

Microsoft also said Thursday that it plans to ship between 4.5 million and 5.5 million Xbox 360 consoles worldwide by June 2006. Analyst Rick Sherlund with Goldman Sachs said the fact that Microsoft is forecasting a steady stream of Xbox consoles, rather than big spikes, will likely mean shortages for customers during the holidays.

"You will not come close to meeting demand in the December quarter," he said.

Sherlund said that raises concerns that there could be some production snafus, but he noted that the company still has plenty of time to gain an edge over Sony's PlayStation 3, which isn't due out until next spring.

Microsoft said it is on track with its Xbox manufacturing plans.

Microsoft did not change its overall revenue guidance for the full fiscal year ending June 30 of between $43.7 billion and $44.5 billion.

Earnings guidance for the full fiscal year was only slightly changed from the previous quarter's guidance for that period. Microsoft said it expects to earn $1.26 to $1.30 per share, including the 2-cent charge related to the RealNetworks settlement. The company had previously said it expected to earn $1.27 to $1.32 per share for the full year, without the charge.

"We feel good about the quarter ahead and good about the year ahead," Liddell said.

In the fiscal first quarter, Microsoft said results were helped in particular by strong growth in its Server and Tools unit. The company saw a 15 percent increase in revenue growth from its SQL Server product although a new version of the software is due out in November.

Di Bona said the company performed well overall.

"It's not a bad earnings number," he said.

Microsoft also said Thursday that it expects to accelerate a previously announced plan to buy back around $30 billion in company stock. Microsoft has already repurchased about $11 billion in shares, and Liddell said the company expects to repurchase the additional $19 billion by the end of 2006. It previously had said it expected to complete the plan by June of 2008.

Liddell said the accelerated buyback showed "confidence about the future performance of the company."

He noted that Microsoft, with a cash pile of around $40 billion as of Sept. 30, clearly has the money for it.