Microsoft outdoes expectations
Cost cuts limit fall in profit
October 26, 2009
By Dina Bass Seattle
Microsoft on Friday posted a smaller drop in quarterly profit than analysts estimated after slashing costs to make up for falling sales. The stock had its biggest jump in six months on the Nasdaq on Friday.
First-quarter net income fell to $3.57 billion (R26.7bn), or 40c a share, beating the 32c average estimate of analysts. Revenue, excluding $1.47bn deferred to a future quarter, was $12.9bn, Microsoft said.
The company boosted its cost-reduction target.
Operating costs fell 6.9 percent after Microsoft made its first company-wide firings, slashed travel expenses and cut the rates it pays vendors to cope with slower spending by business customers. Demand from consumers helped sales of Windows for personal computers and the Xbox to exceed the estimates of Goldman Sachs analyst Sarah Friar.
Microsoft's stock rose $1.43, or 5.4 percent, to $28.02 on the Nasdaq Stock Market by 4pm in New York, the biggest jump since April 24. It has added 8.2 percent last quarter, trailing the 15 percent gain by the Standard and Poor's 500 index.
Analysts had projected sales of $12.4bn for the period to September. A year earlier, net income was $4.37bn, or 48c a share, on sales of $15.1bn.
Microsoft, which stopped giving earnings forecasts in January, had not provided a specific outlook for first-quarter profit and sales.
The company said it would spend as much as $26.5bn on operating costs in the year to June, down from a previous forecast for as much as $26.9bn.
Chief financial officer Chris Liddell told analysts that Microsoft probably would not boost operating spending in the year after that either.
"They can't manage revenue, but they can manage the bottom line," said Sid Parakh, an analyst at McAdams Wright Ragen in Seattle.
Microsoft deferred more revenue than the $1.1bn to $1.3bn it had expected because pre-orders of Windows 7 were higher than projected. The new operating system officially went on sale on Thursday.
Microsoft sold more copies of Windows last quarter than in any previous period because of Windows 7 orders and high demand for the older Windows XP used on netbooks, general manager Bill Koefoed said.
The company was "more bullish" on the personal computer (PC) market than three months ago and expected a recovery in the consumer market to continue, Koefoed said.
He said corporate demand was sluggish and would not rebound this quarter as some analysts expect.
PC sales rose 2.3 percent last quarter, according to IDC, resuming growth a quarter earlier than the research firm had bet on.
Sales of Windows for personal computers fell 39 percent.
Windows 7 should fuel growth in coming quarters, with Windows sales rising 12 percent to $16.7bn next year after a drop of 11 percent this year, said Friar.
Server-software sales last quarter were little changed, as was revenue at entertainment and devices, the division that includes Xbox.
Sales at Microsoft's online-services division, including the Bing search engine, fell 5.8 percent as prices for internet advertising fell, Koefoed said.
Microsoft's agreement to combine search efforts with Yahoo would not add to revenue this fiscal year, Liddell said. It should add "hundreds of millions" the following year, he said. - Bloomberg
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