Microsoft shares jump after Q1 earnings report

Windows 7 helps software giant record strong gains in revenue, net profit

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Shares of Microsoft (NASDAQ: MSFT) jumped nearly 3.5 percent to 27.19 in after-hours trading Thursday following the software giant's fiscal first-quarter 2011 earnings, which showed a healthy 52 percent gain in net income.

Reporting after regular trading closed, Microsoft said Q1 profit soared to $5.4 billion, or 62 cents per share, from $3.6 billion, or 40 cents per share, in last year's fiscal Q1. Revenue climbed 25 percent to $16.2 billion from last year's $12.9 billion.

Analysts had forecast earnings of 55 cents per share on revenue of $15.8 billion.

While the company showed impressive year-over-year growth and easily topped consensus estimates, last year's Q1 was a down quarter. Compared to fiscal first-quarter numbers from two years ago, Microsoft had a 29 percent increase in earnings and revenue growth of 7.6 percent.

Further, the company said the recent quarter's results included a deferral of $1.47 billion in revenue related to the Windows 7 Upgrade Option program and sales of Windows 7 to OEMs and retailers before general availability in October 2009. Excluding the deferral, revenue growth was 12.6 percent over the year-ago quarter and earnings were up 19 percent. Still healthy, but not quite as eye-popping.

Microsoft's results were driven by strong sales of its Windows 7 operating system and Office 2010. The company's Windows division showed a 66 percent gain in revenue to $4.8 billion from $2.9 billion over last year's Q1 and a profit of $3.3 billion. Microsoft's business unit had revenue of $5.1 billion, up 13 percent from last year's $4.5 billion, and a profit of $3.4 billion.

Together, the Windows division and business unit (which includes Office products) comprised 61 percent of Microsoft's revenue.

The only unit that lost money was the company's Online Services Division, which recorded a net loss of $560 million on revenue of $527 million, thanks in part to higher revenue costs related to Microsoft's Yahoo search agreement and increased R&D expenditures. However, that OSD operating loss was less than the division's operating loss in the fiscal 2010 fourth quarter ended June 30.

The other big loss came from corporate-level activity, which showed an operating loss of $1.05 billion, up 23 percent from last year's Q1 loss.

Microsoft reaffirmed operating expense guidance of $26.9 billion to $27.3 billion for the full year ending June 30, 2011.

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