Instant view: Microsoft, Amazon post strong quarters

LOS ANGELES (Reuters) - Microsoft Corp posted a 60 percent increase in quarterly profit, helped by strong sales of its new Windows 7 operating system, and said it expected business technology spending to recover this year.

And Amazon.com Inc blew past Wall Street profit estimates in its closely watched holiday quarter and forecast stronger-than-expected revenue for early 2010, sending its shares higher.

COMMENTARY:

MICROSOFT CORP

ANDY MIEDLER, ANALYST, EDWARD JONES

"Make no mistake, these are very good results out of Microsoft. Expectations were heightened over the last few weeks, given Q4 PC shipments and good numbers from Intel.

"This was a reaffirmation that Windows 7 should be a good product cycle.

"Over the long term, corporate PCs are long in the tooth and corporations will be looking to update their PCs before Microsoft ends support of Windows XP in 2014."

JANE SNOREK, TECHNOLOGY ANALYST, FIRST AMERICAN FUNDS

"They were amazing. I'm surprised the stock is only up 20 cents. It should be up a couple bucks.

"It was probably that the Windows 7 units were underestimated. Maybe the average selling prices were underestimated. It also looked like the server business was better than most people thought. MSN Online also beat by a little bit, so maybe we are getting a little bit of a Bing effect.

"Last year the stock was a big outperformer. A lot of people think the stock has already had its run. But I think with PCs doing this well and a new Office coming in June, that the stock can still outperform. I think Office can be a big hit."

KATHERINE EGBERT, ANALYST, JEFFERIES & CO.

"The numbers look quite good, especially the Windows numbers. They beat by $800 million, which is good because that's a high margin business. They reiterated op-ex guidance for the year, which is also good. I think there could be some upside on the margins."

BRENDAN BARNICLE, ANALYST, PACIFIC CREST SECURITIES

"These are outstanding numbers. 74 cents was comparable to the 59 cents people were expecting, so it was a big beat. The upside was in the Windows business and service and tools and office business. The online business came in line and the only business shy of expectations was Xbox.

"The operating expenses were guided in line with previous guidance. The quarter is consistent with the strength in PCs and the early appeal of Windows 7."

TRIP CHOWDHRY, MANAGING DIRECTOR, GLOBAL EQUITIES RESEARCH

"They beat on top and bottom line, reflecting a strong product cycle for Windows 7 and server offerings. It also reflects the fact that people haven't updated their systems in the past several years, and have a compelling reason to buy new hardware and software and that's reflected in earnings and revenues.

"The calendar year 2010 will continue to be strong for Microsoft."

SID PARAKH, ANALYST, MCADAMS WRIGHT RAGEN

"These are just good numbers -- better than expected across the board, largely driven by PC sales. Relative to our estimates, most businesses had better revenues, except for the online services group. Otherwise, everything was far better than we thought.

"Revenues in the Windows 7 business were $650 million, more than 10 percent above our estimates, which is a pretty big number. We did see a PC refresh cycle kick in and there was a lot of selling at the retail level. That's because Windows 7 is a good product. Most reviews so far have implied that."

TOAN TRAN, ANALYST, MORNINGSTAR

"Microsoft had an OK quarter. If you take out their revenue deferral, it came in a little bit softer than I expected. Microsoft is not really rebounding as much as the other companies.

"It's hard to say" how Microsoft did in comparison with Wall Street expectations. "Some analysts might have the deferral in there, others don't.

"Just looking at it straight year-over-year, they came in at about $17.3 billion (revenue) without the deferral. That's only about $700 million better than last year. And last year was much more difficult economically.

"I would say it was pretty lackluster (revenue growth), given how much bleaker things looked on the economic front last year. Other companies have rebounded much more than Microsoft has.

"You're seeing PC units do well, Windows 7 is selling much better than Vista did. I think the concern is a lot of the new units might be coming from netbooks. Just smaller revenue."

LAXMI PORURI, SENIOR SOFTWARE-INTERNET ANALYST, PRIMARY

GLOBAL RESEARCH

"They beat substantially on revenue, but I think the whisper number was a little higher on EPS.

"This is the best product cycle in years. Everybody knows that. In the first half of this year, we will see if businesses will carry forward with their Windows plans, or delay it and stick with the versions they have of windows XP. That has been a pattern in '09. we'll see if businesses get out of that pattern."

AMAZON.COM INC

SCOTT TILGHMAN, ANALYST, HUDSON SQUARE RESEARCH

"I would argue that probably the single biggest reason is gross margin... There's a sentiment around that metric that tends to move that stock sometimes more than the absolute performance.

"The (consensus) expectations, as of this morning, was for that line item to be up 30 basis points... It was flat year-over-year.

"The bottom line was obviously much stronger than expected.

"Too often the investment community focuses on the gross margin line alone in evaluating Amazon, rather than looking at overall cash flow.

"While they gave up a little bit in gross margin, they made it up elsewhere."

CHARLES LIEBERMAN, CHIEF INVESTMENT OFFICER, ADVISORS

CAPITAL MANAGEMENT, LLC

"I guess you can't please all of the people all of the time, even when you come in higher than expected, but then Amazon is priced for perfection. It's a very expensive stock."

HAMED KHORSAND, ANALYST, BWS FINANCIAL

"It seems like the operating margin is starting to improve. That in itself was a surprise. Their gross margin was lighter than I expected, but was offset by managing their operating expenses.

"The topline number was very good, much stronger than I was expecting. The bottom line was ahead and it seems like the company's operating margin is starting to improve and that in itself was a surprise. It seems that it's more oriented toward the operating structure of the company, since their costs were up.

"Their gross margin was lighter in the quarter than I was expecting but they offset that by just managing their operating expenses.

"People are trying to digest the numbers. There was some panic selling on the numbers. I think people saw the gross margin number and that's probably what caused the stock to react negatively initially, at the time of the release. I think it's people trying to understand if these are real operating numbers going forward from an operating structure standpoint, and if that's true, the company could, going forward, have an operating margin above 5 percent, which is exactly what the market's been looking for."

DAN GEIMAN, ANALYST, MCADAMS WRIGHT RAGEN

"I don't know if it's buying the mystery selling the history... It seems to be the downdraft in the (stock) market that might be hitting them a little bit" at first.

"The numbers looked really strong, clearly beat expectations."

He said the top end of the first-quarter EPS guidance worked out to about 60 cents per share.

"The guidance looks pretty strong to me.

"Expectations were pretty high ... The thought was that they would have a pretty good quarter."

FREDERICK W. MORAN, INTERNET ANALYST, BENCHMARK CO

"The bottom line is the fundamental story for Amazon of meaningful growth is not only intact and confirmed by the earnings report, they continue to surprise with nice upside beyond any reasonable expectations.

"So far I see no chinks in the armor of Amazon's earnings report. We'd be buyers of the stock."

(Reporting by Alexei Oreskovic and Jim Finkle in San Francisco, Martinne Geller and Caroline Valetkevitch in New York and Sue Zeidler and Lisa Baertlein in Los Angeles)