Microsoft shares jump on lifted outlook

SEATTLE (Reuters) - Microsoft Corp (MSFT.O) lifted its full-year estimates and posted a 23 percent rise in quarterly profit on Thursday, topping investor expectations on strong demand for "Halo 3" and Windows Vista, and sending its shares up 11 percent.

The world's largest software maker raised full-year revenue forecasts across its business units and gave a bullish profit forecast for the current quarter, which includes the crucial holiday shopping season.

Investors have waited for sales of Microsoft's new Vista operating system to pick up since it was released in January. Windows, which sits on more than 90 percent of computers, generates almost 80 cents in profit for every dollar in sales.

"The growth of Windows Vista has finally occurred," said Kim Caughey, senior analyst at Fort Pitt Capital Group.

Microsoft's "Halo 3," the latest installment of its flagship shooter franchise video game, also racked up more than $300 million in its first week of sales in September.

In the just-reported fiscal first quarter, Microsoft beat even Wall Street's most bullish forecast with a net profit of $4.29 billion, or 45 cents per diluted share, up from $3.48 billion, or 35 cents per diluted share, a year earlier.

Revenue rose 27 percent to $13.76 billion in the three months ended September 30.

Analysts, on average, had forecast 39 cents per share in profit with estimates ranging from 38 cents to 40 cents per share on revenue of $12.54 billion, according to Reuters Estimates.

"It looks like it was a blowout quarter," said Toan Tran, analyst at Morningstar. "It looks like they're firing on all cylinders. Windows, Office ... all grew by 20 percent and they're the big hitters for Microsoft."

Shares of Microsoft, already up 10 percent in the last month, surged another 11.4 percent to $35.63 in after-hours trade from their Nasdaq close of $31.99. The market capitalization of Microsoft increased by about $35 billion and its largest shareholder, co-founder Bill Gates, saw his fortune grow by $3 billion.

Microsoft raised its full-year revenue outlook for all of its five business segments including its Windows client sales to a range of between 12 percent to 13 percent versus its previous forecast of 9 percent to 10 percent.

Market research firms Gartner and IDC said global personal computer shipments rose about 15 percent in the September quarter, which helped Microsoft as well as the quarterly results of chip maker Intel Corp (INTC.O).

Revenue at Microsoft's Windows client division, focused on PCs, rose nearly 25 percent in its fiscal first quarter. Operating profit at the segment went up 27 percent to $3.37 billion.

Consumers also bought Xbox 360 consoles to play "Halo 3", vaulting Microsoft's game machine past rivals in September.

The entertainment and devices division, which has posted six straight annual losses, delivered a 91 percent rise in revenue and the segment swung to profit of $165 million from a loss of $142 million a year earlier.

LOOKING AHEAD

Microsoft raised full-year earnings estimates to a range of $1.78 to $1.81 per share from a previous range of $1.69 to $1.73. It also raised its full-year revenue estimate range by almost $2 billion, to $58.8 billion to $59.7 billion.

Wall Street analysts, on average, were forecasting fiscal 2008 earnings of $1.73 per share on revenue of $57.3 billion.

"Microsoft is never going to be aggressive on guidance. Even from a conservative perspective, it looks to be a pretty positive forward view," said Eric Schoenstein, co-portfolio manager at Jensen Portfolio.

Those figures also include a $85 million impact, or 1 cent per diluted share, from costs and expenses related to its $6 billion acquisition of digital advertising firm aQuantive.

For the current quarter, Microsoft forecast earnings in a range of 44 cents to 46 cents per diluted share on revenue of $15.6 billion to $16.1 billion.

Analysts, on average, were forecasting earnings per share of 44 cents a share on revenue of $15.5 billion in Microsoft's fiscal second quarter, according to Reuters Estimates.

The holiday quarter is a crucial one for Microsoft as it aims to spur adoption of new computers running its latest Windows Vista operating system. Its entertainment arm also counts on the December quarter generating twice as much revenue as any other quarter of the year.

The company's online services group lost money for a fifth-straight quarter despite a 25 percent rise in revenue from a year earlier helped by an $80 million revenue boost from aQuantive, which became part of Microsoft in August.

Microsoft's Office business posted a 20 percent increase in revenue to $4.11 billion and profit rose 21 percent.

(Additional reporting by Ritsuko Ando in New York and Lisa Baertlein in Los Angeles)