MESSAGE
| DATE | 2002-10-17 |
| FROM | Ruben I Safir
|
| SUBJECT | Subject: [hangout] The DMCA - Wall Street Loves it
|
Microsoft Sales and Profit Rise By REUTERS
Filed at 8:21 p.m. ET
SEATTLE (Reuters) - Microsoft Corp. (MSFT.O) said on Thursday
first-quarter earnings more than doubled, topping cautious Wall Street
estimates, as revenues surged on a new software licensing plan.
At a time when a slowdown on technology spending by companies has
weighed on profits and shares, the world's largest software maker also
raised its full-year revenue and earnings outlook.
Shares in Microsoft rose sharply in after-hours trade, gaining more than
4 percent to $53.16, from a close of $50.77 on the Nasdaq.
``I think this was a gangbuster quarter,'' said Sanford C. Bernstein
analyst Charles Di Bona. ``There is just really exceptional strength
there.''
Boosted by new subscription-style licensing that encourages corporate
customers to pay yearly fees for software, net income was $2.73 billion,
or 50 cents per share in the quarter ended Sept. 30.
That easily topped the highest Wall Street forecast for 46 cents per
share and Microsoft's own projections for 42 or 43 cents. The result was
also more than double last year's net profit of $1.28 billion, or 23
cents per share, which included a charge of 20 cents per share on
investment impairments.
The surprisingly strong first quarter result would have been even higher
if Microsoft had not taken a $291 million, or 5 cent per-share charge on
investment losses, it said.
Revenue was $7.75 billion, better than Microsoft's own forecast for
between $7.0 billion and $7.1 billion and up from $6.13 billion a year
earlier.
Microsoft said it now expects earnings per share of 45 cents or 46 cents
on revenue of between $8.5 billion and $8.6 billion in its second fiscal
quarter ending December.
For the full fiscal year to June 2003, Microsoft said it expected
revenue to be in the range of $32.2 billion and $32.6 billion with
earnings per share of between $1.89 and $1.95.
For the full year, analysts had expected earnings per share of $1.90.
NEW LICENSING BOOSTS UNEARNED REVENUE
``During the quarter, we saw broader customer adoption of our licensing
programs than we anticipated, as customers recognized the value of
entering into long-term licensing agreements for our products,'' said
John Connors, Microsoft's Chief Financial Officer.
Microsoft had set a July 31 deadline for a new licensing system that
encourages customers to make regular payments for the latest software,
instead of deciding whether to upgrade to a new version of Windows,
Office, or other programs.
The new subscription-style program allows Microsoft to account for some
of the sales as unearned revenue to be recognized in future quarters.
With reported revenue expected to become more predictable as result,
analysts have shifted their focus on Microsoft's unearned revenue
balance, which stood at $9.1 billion at the end of the September
quarter, up from $7.7 billion in the previous quarter. Unearned revenue
is revenue that has been booked but not yet recognized as income.
Prudential Securities analyst John McPeake said that after the initial
surge, caused by last-minute and new license sign-ups, Microsoft's
balance of unearned revenue could trend lower over the next few
quarters.
Microsoft, usually cautious in its guidance, agreed. ``It is probable
that the total unearned revenue balance will tick down sequentially over
the next few quarters,'' said CFO Connors.
The pricing move has sparked complaints among customers, some of whom
will end up paying more for software, causing Microsoft Chief Executive
Steve Ballmer to admit that the new plan upset some, especially given
the tough business climate.
But given the uptake and the surge in revenue, Bernstein's Di Bona said
that Microsoft's licensing plan was proving more successful than some
investors had been lead to believe.
``This licensing plan will be what continues to drive expectations,'' Di
Bona said.
In the fiscal first-quarter, 23 percent of total revenue came from the
recognition of such revenue, the company said.
Microsoft had a cash position of near $40.5 billion at the end of the
quarter.
NEW SEGMENTS
Microsoft also gave investors their most detailed look to date at the
financial health of its operations outside the core software business.
All of Microsoft's business segments saw double-digit growth, adjusting
for the sale of MSN's Expedia Inc.travel services business, which was
sold off this year.
The core division that includes the Windows operating system for desktop
personal computers, saw 33 percent growth in revenue to $2.85 billion,
the company said.
The company's home entertainment division, which mainly includes the
Xbox games machine and other products, reported revenue of $485 billion,
up 82 percent from a year earlier. -- __________________________
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