Ambitious Microsoft posts strong profit

Ambitious Microsoft posts strong profit

	Published : Fri, 26 Oct 2007 05:48 By : Agencies Print this Story

SEATTLE (AP) - After Microsoft Corp. executives laid out plans in July to win at Web search, online advertising, Web-based software and video games, analysts wondered if the world's largest software maker had too many balls in the air. Microsoft's answer, in the form of its fiscal first-quarter results announced Thursday, was a resounding 'no.'

Microsoft said its profit soared 23 percent to $4.29 billion, or 45 cents per share, from $3.48 billion, or 35 cents per share, during the same period last year, as brisk sales of the new 'Halo 3' video game, Windows and Office helped it breeze past Wall Street's expectations.

Investors sent Microsoft shares up 11 percent to $35.66 in after-hours electronic trading.

Analysts, on average, had forecast a profit of 39 cents per share, according to a Thomson Financial poll.

Revenue for the period ended Sept. 30 grew 27 percent to $13.76 billion from $10.81 billion last year, beating analysts' forecast by more than $1 billion.

'It's a very good report,' said McAdams Wright Ragen analyst Sid Parakh. 'I think people are going to revisit how they look at Microsoft. So far they have been viewing it as value stock. Going forward, they'll think about it as a growth stock.'

Microsoft sold 88 million copies of Windows Vista since the operating system went on sale in January -- 28 million since the end of July -- according to Colleen Healy, general manager of investor relations for Microsoft.

The division responsible for Vista contributed $4.14 billion in revenue in the quarter, 25 percent more than a year ago. Microsoft booked 27 percent more annual license agreements for Windows than in the year-ago quarter, a sign businesses are committed to following Microsoft into the Vista era.

Sales from the unit that makes the Office 2007 software suite rose 20 percent to $4.11 billion.

Robust PC sales worldwide boosted both operating system and Office sales, but Healy said those divisions also benefited from customers choosing higher-priced premium versions of Vista.

Sales of 'Halo 3' and the Xbox 360 consoles it is played on pushed the company's entertainment and devices division to a profit of $165 million in the quarter -- the Xbox division's second time ever in the black. The unit's revenue nearly doubled from a year ago to $1.93 billion, including $330 million from 'Halo 3.' Microsoft sold 1.8 million Xbox 360 consoles in the quarter.

But in the crucial holiday shopping quarter, Microsoft isn't expecting spectacular growth for this division, which also recently launched a new line of Zune digital media players.

Chief Financial Officer Chris Liddell forecast in a conference call Thursday that the division's revenue would be flat to down 8 percent from last year.

Walter Pritchard, an analyst at Cowen and Co., said Microsoft was 'probably being a little conservative,' leaving room for a drop in consumer spending.

The analyst also said Microsoft shipped more Xbox 360s to retailers than they could sell last year, whereas this year, retailers were already stocking up in the first quarter, making year-over-year comparisons uneven. Microsoft also cut Xbox prices in August.

The division responsible for online advertising was the one laggard in the quarter, posting a loss of $264 million, hurt by the company's acquisition of aQuantive and by heavy investments in Web search and data centers.

'This is a competitive space,' Healy said. 'If you want to play right now, you are in investment mode.'

Without an $80 million contribution from aQuantive's, Microsoft's ad revenue would have improved 25 percent.

Microsoft raised guidance for the year, saying it expected to earn $1.78 to $1.81 per share on revenue of $58.8 billion to $59.7 billion. Earlier, the company predicted earnings of $1.69 to $1.73 per share on $56.8 billion to $57.8 billion in sales.

Shares of Microsoft gained 74 cents, or 2.4 percent, in regular trading Thursday to close at $31.99, above its 52-week high of $31.84.