Microsoft profit rises 79 pct

SEATTLE (Reuters) - Microsoft MSFT.O signaled confidence to a rattled stock market by raising its full-year earnings outlook above Wall Street targets and reporting a 79 percent rise in quarterly profit on Thursday.

Analysts took the results as a good sign for technology companies in the face of a slowing economy, and Microsoft shares rose 4.5 percent in after-hours trade. That followed a 4 percent gain in regular trade, representing a gain of more than $26 billion in its market value for the day.

The results and raised forecasts from the world's largest software maker come on the heels of disappointing outlooks from tech bellwethers Intel Corp INTC.O and Apple Inc AAPL.O, which sent shivers through a U.S. stock market that shed about 10 percent to start the year, before bouncing.

Microsoft reported bumper quarterly sales of its Windows Vista operating system and Office software on the back of strong computer sales, while its Xbox unit cashed in on new game titles that spurred hardware demand.

“It’s clear that this new product cycle is paying off,” said Andy Miedler, technology analyst at Edward Jones. “We’re impressed that they had enough confidence to follow through and raised guidance.”

Chief Financial Officer Chris Liddell told Reuters in an interview that the company was “a little cautious” about sales in North America for the remainder of its fiscal year. Liddell later told analysts on a conference call that there were no signs of any significant impact on Microsoft from a slowing U.S. economy.

“You have to look really hard to find any weakness in our results,” said the usually-reserved Liddell.

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Net profit in Microsoft’s fiscal second quarter rose to $4.7 billion, or 50 cents per diluted share, from $2.6 billion, or 26 cents per diluted share, in the year-ago period. Revenue rose 30 percent to $16.37 billion.

Analysts, on average, had forecast 46 cents per share on revenue of $15.94 billion, according to Reuters Estimates.

The second-quarter revenue and profit growth rates are exaggerated by results a year before, when Microsoft deferred more than $1 billion in net income due to delays in releasing Vista and Office 2007, which hit stores in early 2007.


Microsoft lifted its outlook for the fiscal year ending in June. It now expects earnings per share to range between $1.85 and $1.88 per share, up from its previous estimate of $1.78 to $1.81. Wall Street, on average, had projected $1.81.

It boosted its revenue outlook to between $59.9 billion and $60.5 billion, up from $58.8 billion to $59.7 billion before.

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“Microsoft often sets the bar low for itself,” said Kim Caughey, senior analyst at Fort Pitt Capital Group. “These numbers tell me that Microsoft is seeing strength in the pipeline.”

Demand from corporate customers showed no signs of slowing, as reflected in a $2 billion increase in unearned revenue versus a year earlier. That excludes a one-time bump last year from the issuance of coupons to cover software delays.

Unearned revenue usually covers multiyear agreements signed by large organizations to license Microsoft products. That revenue is recognized over the life of the contract.

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Corporate customers pushed to sign new agreements ahead of the company’s February launch of new software that runs on computers servers including Windows Server 2008.

While Microsoft and other tech companies are sensitive to the economy, Miedler said Microsoft and software in general can be a bit more defensive, in part because the products they sell are designed to improve productivity and help cut costs.

Redmond, Washington-based Microsoft was not alone in providing some upbeat news in the technology industry. Network equipment maker Juniper Networks Inc JNPR.O and chip maker Broadcom BRCM.O also delivered a strong December quarter.

Microsoft posted strong Vista sales, helped by double-digit percentage growth in computer sales in the quarter. Windows sales were helped in part, according to Liddell, by improvements in fighting software piracy.

The Office business unit posted a 20 percent revenue gain excluding last year’s software delay coupons on the back of surging demand for SharePoint collaboration software.

Microsoft’s entertainment and devices division, home to the Xbox 360 business, delivered a 3 percent rise in revenue in the December quarter.

However, it swung to an operating profit of $357 million from a loss of $302 million in the year-ago period, boosted by lower Xbox 360 manufacturing costs and strong sales of profit-rich game titles like shooting game “Halo 3.”

For the current quarter, Microsoft said earnings per share would range between 43 cents and 45 cents per share on revenue ranging from $14.3 billion to $14.6 billion, generally in line with Wall Street targets.

Last November, shares of Microsoft surged to their highest level since 2001, $37.50, after the September-quarter results. As of Wednesday’s close, at $31.93, the stock had fallen more than 10 percent since then, partly due to economic concerns and broader market declines.

But on Thursday, Microsoft shares rose to $34.73 in after-hours trade after closing at $33.25 on Nasdaq.

Additional reporting by Lisa Baertlein and Gina Keating in Los Angeles; Editing by Braden Reddall, Gary Hill