Microsoft Profit Jumps 35% but Investors Shrug

April 23, 2010
Windows division reported strong consumer demand but more muted growth from corporate customers.

A global rise in computer shipments that helped carry Microsoft Corp.'s net income 35% higher in the most recent quarter wasn't enough to satisfy investors who were looking for a bigger boost from recovering business spending.

Microsoft's Windows division reported strong consumer demand but more muted growth from corporate customers.

That didn't mesh with the high expectations recently set by Intel Corp. and other big tech companies. Intel's net income nearly quadrupled on strong sales of chips for corporate PCs and servers.

Specifically, investors predicted better sales in Microsoft's server division, and expected companies to have placed advance orders for more new software, said Andrew Miedler, an Edward Jones analyst, in an interview.

During a conference call, Microsoft CFO Peter Klein tried to rein in expectations for the pace of a recovery for software companies.

"If you think about what's happened over the last year, the first thing that got hit and decreased earliest and fastest was hardware, and that's what's coming back first," Klein said. "Over the course of calendar 2010 and certainly into 2011 you'll start to see the growth in the overall IT [information technology] spend."

For the January-March fiscal third quarter, Microsoft earned $4.01 billion, or 45 cents per share. That was higher than the 42 cents per share forecast by analysts surveyed by Thomson Reuters. It was an increase from $2.98 billion, or 33 cents per share, a year ago.

Revenue rose 6% to $14.5 billion, slightly more than the $14.4 billion analysts were expecting. Microsoft had $13.6 billion in revenue in the same quarter a year ago.

The division responsible for Windows increased revenue 28% to $4.4 billion. Microsoft's general manager of investor relations, Bill Koefoed, said during a conference call that sales of copies of Windows for consumers rose 35%. Business licenses for Windows, which are more profitable for Microsoft, grew 15%.

Microsoft's online business, which includes Web search and online advertising, saw revenue rise 12% to $566 million, but it still posted a wider operating loss of $713 million.

Microsoft has started making payments to Yahoo Inc. as part of a Web search deal that the two forged last year. This quarter, the payments amounted to $78 million. But Microsoft is not operating the technology behind Yahoo's search right away, and it doesn't expect the partnership to contribute to revenue until the second half of fiscal 2011.

Revenue in the business software group, which makes Office and other programs, fell 6% to $4.2 billion. Microsoft is waiting to report $305 million in Office revenue until after the upcoming Office 2010 launches in the current quarter.

Revenue from Microsoft's entertainment division, which makes the Xbox 360 game system and the Windows mobile operating system, edged up 2% to $1.7 billion.

Microsoft didn't give revenue or earnings guidance for the next fiscal year, which starts in July. But Klein said he expects sales of Windows 7, the new Office 2010 and updates to SharePoint and SQL Server, two business products, to drive revenue. Klein also said he expects the Web advertising market to improve in fiscal 2011.

Copyright 2010 The Associated Press

Popular Sponsored Recommendations

Empowering the Modern Workforce: The Power of Connected Worker Technologies

March 1, 2024
Explore real-world strategies to boost worker safety, collaboration, training, and productivity in manufacturing. Emphasizing Industry 4.0, we'll discuss digitalization and automation...

3 Best Practices to Create a Product-Centric Competitive Advantage with PRO.FILE PLM

Jan. 25, 2024
Gain insight on best practices and strategies you need to accelerate engineering change management and reduce time to market. Register now for your opportunity to accelerate your...

Transformative Capabilities for XaaS Models in Manufacturing

Feb. 14, 2024
The manufacturing sector is undergoing a pivotal shift toward "servitization," or enhancing product offerings with services and embracing a subscription model. This transition...

Shifting Your Business from Products to Service-Based Business Models: Generating Predictable Revenues

Oct. 27, 2023
Executive summary on a recent IndustryWeek-hosted webinar sponsored by SAP

Voice your opinion!

To join the conversation, and become an exclusive member of IndustryWeek, create an account today!