Microsoft Profit Jumps; Sales Rise at Fastest Pace in Two Years

Microsoft Corp., the world’s largest software maker, reported fourth-quarter profit topped analysts’ estimates after customerspurchased more personal computers running the Windows operating system.

Net income climbed to $4.52 billion, or 51 cents a share, compared with the 46-cent average of estimates compiled by Bloomberg. Sales rose 22 percent, the most in more than two years, to $16 billion, the company said today in a statement.

Microsoft is benefitting from a recovery in spending by large businesses. The company said in late June it had sold 150 million copies of its newest Windows 7, making it the fastest- selling operating system in the Redmond, Washington-based company’s history. Global PC shipments jumped last quarter, according to research firm Gartner Inc.

“This is an indication that enterprises are spending and that Microsoft does have a product suite that’s appealing to these customers,” said Sid Parakh, an analyst at McAdams Wright Ragen in Seattle.

Microsoft rose 0.4 percent in after-hours trading to $25.95 after climbing 72 cents, or 2.9 percent, to $25.84 at 4 p.m. New York time on the Nasdaq Stock Market. The stock slid 21 percent last quarter, compared with a 12 percent drop in the Standard & Poor’s 500 Index.

Analysts had projected total sales of $15.3 billion for the fourth quarter, which ended June 30.

Net income in the fourth quarter of 2009 was $3.05 billion, or 34 cents a share, on sales of $13.1 billion. Net income in that period included legal expenses, severance costs and impairments to investments.

Operating Costs Outlook

Operating expenses for the year starting July 1 will be $26.9 billion to $27.3 billion, the company said, down from its March forecast of $27 billion to $27.5 billion. Microsoft no longer provides projections for sales and profit.

Fourth-quarter unearned revenue, a measure of multiyear contracts, was $14.8 billion. Analysts on average had estimated it would come in at $14.7 billion, according to Heather Bellini, an analyst at ISI Group in New York.

Revenue in the Windows division was $4.55 billion, above the $4.3 billion estimate of Brent Thill, an analyst at UBS AG in San Francisco. Microsoft Business Division sales, made up mostly of Office software, were $5.25 billion, compared with Thill’s $5.05 billion projection.

“It sounds like enterprises are buying Windows 7 and will roll it out at some point,” said Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Oregon, who recommends buying the shares and doesn’t own any himself. “We’ve seen more and more evidence of a recovery in enterprise spending.”

Server Revenue

Server software revenue was $4.01 billion. Thill had estimated $3.85 billion. The Online Services unit, including Bing, had sales of $565 million, compared with Thill’s $589 million prediction.

Entertainment and Devices, the unit that includes Xbox and mobile phones, came in at $1.6 billion in sales, topping Thill $1.58 billion estimate.

Global PC shipments industrywide rose 21 percent in the second quarter, Gartner said, beating the firm’s projection of 19 percent. Intel Corp., the world’s biggest chipmaker, posted record second-quarter sales and said corporate spending is strengthening.

Apple Inc., which competes with Microsoft in operating systems for computers, tablets and mobile phones, reported quarterly sales this week of $15.7 billion, topping analysts’ estimates.

Bing Gains Share

Microsoft’s Bing Internet search engine gained a point of U.S. market share during the quarter, rising to 12.7 percent, according to ComScore Inc. in Reston, Virginia. That compared with 62.6 percent for Google Inc. and 18.9 percent for Yahoo! Inc., which is switching over to using Bing’s technology.

Microsoft’s fiscal third-quarter report disappointed some investors because much of the company’s strength came from consumers rather than businesses. Unearned revenue in that period also missed the average of analysts’ estimates, suggesting corporate clients held off on signing multiyear agreements.

Information-technology spending will climb 7.8 percent worldwide in 2010, according to an estimate from Forrester Research Inc.


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