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April 19, 2012

Microsoft News - Microsoft Sports Springtime Glow after Surpassing Analyst Expectations

By Carrie Schmelkin, TMCnet Web Editor

Much as this April weather has been quite surprising here on the East Coast – with the past few days shooting up to the 90s, 15 degrees warmer than they should be – Microsoft’s (News - Alert) recent quarterly earnings caught analysts by surprise as the company made significant gains in its quarterly revenue. And, as the company looks ahead to the next quarter, it’s whipping out its beach towels and getting ready to celebrate its six percent increase in its quarterly revenue.

“We’re driving toward exciting launches across the entire company, while delivering strong financial results,” said Steve Ballmer (News - Alert), chief executive officer at Microsoft, in a statement. “With the upcoming release of new Windows 8 PCs and tablets, the next version of Office, and a wide array of products and services for the enterprise and consumers, we will be delivering exceptional value to all our customers in the year ahead.”

For the quarter ended March 31, 2012, Microsoft reported quarterly revenue of $17.41 billion, marking a six percent increase from the prior year period which was $16.43 billion. Operating income was just as positive at $6.37 billion, up 12 percent from the prior year period. This caught many analysts off guard as, on average, they expected the company to report earnings of 58 cents a share and revenue of $17.18 billion, according to a New York Times article.

Further, net income and diluted earnings per share for the quarter were $5.11 billion and $0.60 per share, compared with $5.23 billion and $0.61 per share, respectively, in the prior year period. Prior year net income and diluted earnings per share included a $461 million or $0.05 per share tax benefit, which was largely related to a tax settlement with the U.S. Internal Revenue Service, according to company officials.

What was of great note this quarter, however, was the fact that Microsoft sales of its flagship software product, Windows, rose four percent in the fiscal third quarter, despite analyst predictions that there would be a drop in business because of widespread industry data revealing weakness in the personal computer business. Specifically, the Windows and Windows Live Division posted revenue of $4.62 billion, a four percent increase from the prior year period. Moreover, a commitment to Windows 7 was demonstrated with enterprise desktops on Windows 7 now up to 40 percent worldwide.

“We saw strong demand for our business desktop and infrastructure offerings,” said Peter Klein (News - Alert), chief financial officer at Microsoft. “Solid revenue growth and continued cost discipline drove double-digit operating income growth.”

This success with its core franchises is particularly exciting because Microsoft has currently found itself treading in deep water with a big shark like Apple (News - Alert) and in particular Apple’s “have-to-have” products such as the iPhone and iPad. In fact, Apple currently boasts a market value more than twice that of Microsoft. And even with Microsoft preparing to counter the iPad with Windows 8, the company has still not made enough headway on that front, according to the Times.

Although Microsoft reported a stellar quarter in terms of revenue, the company did find itself taking a hit when it came to its Entertainment & Devices Division, which posted revenue of $1.62 billion, representing a decrease of 16 percent from the prior period due to a soft gaming console market. Xbox, did, however, hold on to its title as the top-selling console in the U.S. for the 15th consecutive month, and Microsoft announced new television content partners and experiences for its 40 million Xbox LIVE members.

So what’s the forecast for next quarter?

“We continue to execute well across our businesses, and we are seeing robust demand for our enterprise products and services,” said Kevin Turner, chief operating officer at Microsoft. “Our investments and offerings in the database platform and public, private, and hybrid cloud are helping our customers transform their operations to meet today’s evolving business demands.”

Edited by Carrie Schmelkin

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