Software, Xbox sales lift Microsoft to strong Q1

Software, Xbox sales lift Microsoft to strong Q1

Microsoft's Server & Tools and Entertainment divisions lifted the company to a strong first quarter for fiscal 2007.

A strong quarter from its software server and entertainment divisions helped Microsoft beat Wall Street analyst expectations for the first quarter of fiscal 2007, which ended September 30.

Microsoft reported revenue for the quarter of $US10.81 billion, a year-over-year increase of 11 per cent and slightly higher than the $US10.75 billion analysts polled by Thomson Financial were expecting from the vendor. Last year for the same time period, Microsoft reported $US9.7 billion of revenue in the quarter.

Microsoft also beat analysts estimates for earnings per share (EPS), reporting earnings of $US0.35 per share, $US0.04 higher than the $US0.31 per share Thomson analysts were expecting. Net income for the quarter was $US3.48 billion, slightly higher than the same quarter of the previous year, when net income was $US3.14 billion or $US0.29 per share.

Server & Tools revenue increased 17 per cent over the comparable quarter in the prior year, with SQL Server 2005, Windows Server, Visual Studio 2005 and BizTalk Server performing especially well, the company said. Entertainment and Devices Division revenue grew 70 per cent over the prior year, driven mainly by demand for Xbox 360 consoles, software and peripherals, and the Xbox Live service. To date, 6 million Xbox 360 consoles had been sold worldwide, while Xbox Live passed the 4 million-member mark during the quarter, Microsoft said.

However, even as Microsoft reported a strong quarter, the company lowered its full-year guidance for EPS by a cent from $US1.46 to $US1.47.

Some analysts speculated the change could be related to Windows Vista being later than originally expected, due to be generally available in January 2007, after the holidays, and new technology guarantee programs the company announced earlier this week for Windows Vista and Office 2007. Those programs are designed to inspire users to purchase hardware for the new software during the holiday season, giving users coupons for free or discounted upgrades to Windows or Office if they buy new PCs capable of running them. The programs run from yesterday to March 15, 2007.

The programs also caused Microsoft to change its guidance for the second quarter, deferring $1.5 billion in revenue from the second quarter to the third quarter, the company said.

New guidance for the second quarter is revenue in the range of $US11.8 billion to $US12.4 billion, and operating income in the range of $US2.9 billion to $US3.1 billion. Diluted EPS are expected to be $US0.22 to $US0.24, which includes an $US0.11 per share impact for the deferred revenue.

For the full fiscal year, which ends June 30, 2007, Microsoft is expecting revenue between $US50 billion and $US50.9 billion; operating income from $US19.1 billion to $US19.5 billion; and diluted EPS in the range of $US1.43 to $US1.46.

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