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Investment loss cuts Microsoft earnings in half

Investment loss cuts Microsoft earnings in half

The slowdown in the US economy indirectly took its toll on software giant Microsoft, which reported on Thursday a 6 per cent growth in revenue over the same quarter last year, but saw investment losses drag down earnings.

The software maker reported earnings of $US1.28 billion for the fiscal first quarter of 2002, which ended on September 30. Revenue came in at $6.13 billion as expected. Microsoft earned revenues of $5.8 billion in the same quarter last year.

The discrepancy between Microsoft's results and the expectations of analysts had to do with a $1.24 billion after-tax charge Microsoft took during the quarter, largely due to $980 million in losses from investments in the cable and telecommunications industries.

Operating income totalled $2.90 billion compared to $2.78 billion in the prior year, Microsoft said.

Analysts now expect to get some sense on how the company plans to do in the current quarter, specifically regarding its view of the PC market as consumer confidence wanes and the aftermath of the September 11 attacks sets in.

"Guidance on PC growth will be important," said John Puricelli, an analyst with AG Edwards & Sons, in an interview before the company's results came out. "The real key will be what Microsoft's forward-looking estimates are."

The company didn't immediately offer guidance on expected PC sales on its fiscal second quarter, which will include the always-important holiday shopping season, when the PC industry typically has its healthiest quarter.

In the market for its .Net servers, which accounted for about 20 per cent of Microsoft's revenue, Microsoft said growth continued, as it had expected it to. However, sales of its enterprise products are somewhat secondary, Puricelli said.

"Servers are not something to ignore, but right now it's certainly about desktop software."

Looking ahead, Microsoft noted that it expects its current quarter to see gains from the introduction of its new Windows XP operating system, the Xbox video game console, and its new MSN 7 Web software and services. The uncertain consumer market will have an effect on those sales, Microsoft said.

In that quarter, Microsoft said revenue is expected to be between $7.1 billion and $7.3 billion.


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