Vista Drives 'Record Profits' at Microsoft

Microsoft investors were gifted with a grand slam of double digit growth in revenue, operating income and EPS last quarter.
What a difference a year makes. Last year at this time, Microsoft CEO Steve Ballmer was forced to explain away a disappointing quarter. Not this year.

Microsoft (Quote) announced "record profits" and revenue of $14.40 billion for the quarter ended March 31, 2007, 32 percent better than the $10.90 billion performance for the same period last year. This revenue surge drove 41 percent growth in operating income, to $6.59 billion, compared to $3.89 billion for the same period last year. Net income rose by 40 percent to $4.93 billion (compared to $2.98 billion).

Diluted earnings per share (EPS) for the quarter rose by a mind-boggling 72 percent to $0.50 (versus $0.29).

Microsoft CFO Chris Liddell noted that earnings and revenue growth were boosted by deferred recognition of coupons related to its technology guarantee programs for Vista and Office 2007. Nevertheless, "revenue growth would have been a very robust 17 percent without the coupon program," he said during a conference call to discuss the results.

Microsoft had offered its technology guarantee last October in order to help retailers offset the delay in the launch of Vista, which missed the busy holiday season.

Liddell said he expects "a strong finish to what has been an excellent year" and predicted 15 percent revenue growth and 16 percent growth in EPS for the full year ending June 30, 2007.

Colleen Healy, general manager of investor relations at Microsoft, said the revenue growth was driven in particular by a strong consumer response to Office 2007, yielding "better than expected" retail sales. She also said that Microsoft Dynamics, its mid-market ERP (define) product, enjoyed a 20 percent climb in billing.

This earnings report comes barely two months after Ballmer tried to temper analysts' expectations for short-term revenue and earnings growth at the Redmond, Wash.-based software behemoth.

But Vista and Office 2007 sales proved Ballmer expectations were too conservative.

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