UPDATE 1-Microsoft forecasts modest cost growth

Tue Mar 2, 2010 12:51pm EST

* Sees fiscal 2011 operating expense $27 bln to $27.5 bln

* Up from fiscal 2010 forecast of $26.2 bln to $26.5 bln

* Windows 7 sales up to 90 mln copies

SEATTLE, March 2 (Reuters) - Microsoft Corp (MSFT.O) forecast a relatively small increase in operating expenses for its next fiscal year, as it tries to keep a lid on costs while waiting for a rebound in technology spending from its core business customers.

The world's largest software company cut more than $3 billion from its original spending plan last fiscal year, as it slashed more than 5,000 jobs in the downturn, and said on Tuesday it is still focused on reining in spending.

Microsoft is now targeting $27 billion to $27.5 billion in operating expenses for fiscal 2011, which starts in July, Chief Financial Officer Peter Klein told a Morgan Stanley investor conference.

That signals expected cost growth of about 2.5 percent to 4.4 percent over its forecast for the current fiscal year of $26.2 billion to $26.5 billion. It is below the $28 billion or so expected by Morgan Stanley analysts.

Microsoft shares were down 1.3 percent to $28.64 in early afternoon trading on Nasdaq.

Klein did not forecast revenue or profit. Microsoft has not issued any specific forecasts for either since 2008, because of the uncertain economy.

He did say that Windows 7, the company's best-selling operating system launched in October, had now sold 90 million copies. By the end of last year, it had sold 60 million copies.

The Windows unit is one of the company's chief profit engines, reporting $6.9 billion in sales and $5.4 billion in profit last quarter, almost twice as much as profit as the same quarter the year before.

Klein reiterated Microsoft's broad view that the recovery in business tech spending would occur in fiscal 2011.

"There will be an enterprise refresh cycle," said Klein. "It's not precisely certain when that will happen and how fast it will happen, but we expect it to happen this calendar year and go into next calendar year, and that will be a really good catalyst for growth for our PC business."

Klein took up the role of CFO last November, succeeding Chris Liddell, who left to join General Motors [GM.UL]. (Reporting by Bill Rigby; Editing by Tim Dobbyn)

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