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Microsoft Profit Climbs 35% On Strong Windows 7 Sales

Microsoft MSFT 042210

Microsoft Corp. (MSFT) said Thursday after the markets closed that its third quarter profit rose 35% from last year, helped by continuing strong demand for its Windows 7 operating system.

The world's largest software company reported net income for the third quarter of $4.01 billion or $0.45 per share, compared to $2.98 billion or $0.33 per share for the year-ago quarter.

Analysts expected the company to earn $0.42 per share for the third quarter.

The company said the latest quarter results include the deferral of $305 million of revenue relating to the Microsoft Office 2010 Technology Guarantee program.

Redmond, Washington-based Microsoft said revenue for the third quarter rose 6% to $14.50 billion from $13.65 billion in the same quarter last year. Adjusting for the revenue deferral, the latest quarter revenue was $14.81 billion, up 8% from a year ago.

Operating income for the quarter increased 17% to $5.17 billion from $4.44 billion in the prior year quarter.

"Windows 7 continues to be a growth engine, but we also saw strong growth in other areas like Bing search, Xbox LIVE and our emerging cloud services," said Peter Klein, chief financial officer of Microsoft. "Our record third-quarter revenue along with continued rigor on cost management resulted in exceptional EPS growth."

Microsoft benefited immensely due to a pick up in worldwide PC shipments during the quarter. With the gradual recovery in economy, corporates also have started increasing their technology spending.

Worldwide PC shipments during the 2010 first quarter rose a better than expected 27.4% from a year ago to 84.3 million units, according to preliminary results released earlier this month by market research firm Gartner, Inc. (IT).

Microsoft's two major divisions make the Windows operating system and Office business software. About 90% of the PCs around the world run on the company's windows operating system.

Third quarter revenue from the company's windows and windows live division rose 28% to $4.42 billion from $3.45 billion a year ago, driven by strong demand for Windows 7.

The company launched Windows 7 and Windows Server 2008 R2 in October. More than 10% of all PCs worldwide are running Windows 7 today, making Windows 7 by far the fastest-selling operating system in history, Microsoft noted.

"Business customers are beginning to refresh their desktops and the momentum of Windows 7 continues to be strong," said Kevin Turner, chief operating officer. "We are also seeing tremendous interest in our market-leading cloud services for business."

Server and tools division's revenue grew 3% to $3.58 billion in the third quarter from $3.49 billion in the third quarter of last year.

Microsoft's business division revenue for the quarter fell 6% to $4.24 billion from $4.51 billion in the prior year quarter. This division's offerings include the Microsoft Office system and Microsoft Dynamics business solutions.

Third quarter revenue from the company's entertainment and devices division increased 2.5% to $1.67 billion from $1.63 billion last year. This division makes the Xbox 360 video game consoles.

The company's online services business posted third quarter revenue of $566 million, up 12% from $507 million in the year-ago quarter.

In February, regulators in the U.S. and the European Union cleared the search-engine alliance between Yahoo! Inc. (YHOO) and Microsoft.

Both Microsoft and Yahoo are trying their level best to gain online search market share from undisputed leader Google, Inc. (GOOG).

For the first nine months of its fiscal year, Microsoft reported net income of $14.24 billion or $1.59 per share, compared to $11.52 billion or $1.28 per share for the same period last year.

Revenue for the nine-month period increased 2% to $46.45 billion from $45.34 billion in the prior year period.

Microsoft offered its latest operating expense guidance of $26.1 billion to $26.3 billion for the fiscal year ending June 30, 2010, compared to its prior guidance of $26.2 billion to $26.5 billion. The company stopped making specific profit or revenue forecasts in January 2009, citing market volatility.

Microsoft shares, which have traded in a range of $18.47 to $31.53 over the past year, closed Thursday's regular trading session at $31.39, up 6 cents. The stock is currently losing $1.32 or 4.21% in after hours trading.

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