Microsoft Blows the Doors off Analysts' 3Q Estimates

Riding the crest of a wave of its cash cow products, Microsoft brought in yet another record quarter. Recession? What Recession?

In what is typically a slow quarter, Microsoft's sales and earnings for its first quarter of fiscal 2011, which closed Sept. 30, blew the doors off even the most optimistic analysts' projections on Thursday.

Microsoft (NASDAQ: MSFT) announced it brought in $16.2 billion in revenues for the period covering July through September. The average estimate of analysts polled by Thomson Reuters had been $15.81 billion for the quarter. That was up 25 percent over the same quarter last year.

The same was true across the board. Analysts' estimates had pegged earnings per share at $0.55. Instead, Microsoft said it brought in EPS of $0.62 -- a 55 percent jump over fiscal 2010's first quarter.

"Our ability to grow revenue while continuing to control costs allowed us to deliver another quarter of year-over-year margin expansion," Peter Klein, Microsoft's CFO, said in a statement.

Operating income came in at $7.12 billion for the quarter, while net income hit $5.41 billion. Those figures constituted 59 percent and 51 percent gains over the same quarter the previous year.

However, the previous year's quarterly numbers were held down by deferral of $1.47 billion held out to cover expenses around Windows 7's Upgrade Option program as well as early sales of the system to OEMs and retailers in advance of Windows 7's consumer launch on Oct. 22 last year.

With that figured in, EPS was diluted by $0.12, bringing net income down to 16 percent growth, and EPS to 19 percent growth, the company said.

Microsoft officials credited much of the growth to the continuing ramp up of Windows 7 sales to enterprise customers, strong corporate demand for Office 2010, which launched last spring, and continued strong sales of Xbox 360 consoles and games.

The company had at least hinted what to expect regarding Windows 7 sales when it announced a week ago that it had sold 240 million licenses for the system in its first year on the market. That was up from 175 million at the end of the previous quarter.

"Microsoft continues to see a healthy and sustaining business PC refresh cycle," the company said in a statement.

Additionally, a recent survey by Dimensional Research found that many IT decision makers are poised to migrate to Office 2010, which began shipping to corporate customers in May.

In fact, sales jumped 15 percent during Office 2010's first full quarter on the market, according to the company.

As it has been its practice in the recent past, Microsoft officials did not make any predictions regarding how the company expects it will do going forward except to say that it projects that operating expenses will likely run between $26.9 billion and $27.3 billion for the full year ending June 30, 2011. That has been the company's custom since the recession first hit.

In a call with financial analysts following the earnings announcement, Klein said that Microsoft officials expect the corporate "refresh cycle" -- wherein companies are upgrading to Windows 7 either by installing the software or getting it pre-loaded on new PCs -- had taken off faster than with previous releases.

Still, Klein said he expects that ramped up sales of Windows 7 to corporations making the upgrade to continue at least through fiscal 2011, which ends June 30, 2011.

Updated to include additional comments made in Microsoft's call with financial analysts.

Stuart J. Johnston is a contributing writer at InternetNews.com, the news service of Internet.com, the network for technology professionals. Follow him on Twitter @stuartj1000.




Tags: Microsoft, earnings, Office 2010, Windows 7, Xbox


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