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Microsoft's strong revenue means Q2 earnings beat the street

Monday, January 23, 2012 by Proactive Investors

Microsoft's (NASDAQ:MSFT) fiscal second-quarter profit fell slightly from a year earlier, still beating expectations, with the Office software suite and Xbox consoles boosting revenues.

For the quarter that ended December 31, Microsoft posted earnings of $6.62 billion, down from $6.63 billion last year. On a per-share basis, earnings rose to 78 cents per share from 77 cents a year earlier. Revenue climbed 4.7 percent to $20.89 billion.

Analysts surveyed by Thomson Reuters expected a profit of 76 cents per share on revenue of $20.92 billion.

Microsoft chief executive officer Steve Ballmer said: "We delivered solid financial results, even as we prepare for a launch year that will accelerate many of our key products and services."

The company's chief financial officer, Peter Klein, added: "We saw strong demand for our business products and services, despite the soft PC market and continuing economic uncertainty in key parts of the world.

"We delivered record earnings per share by continuing to manage our costs while investing for future growth."

Total operating income rose 16.6 percent to $1.9 billion and operating expenses were up 9.4 percent.

Microsoft's entertainment operations, which include the Xbox video games console, saw revenue rise more than 14.6 percent to $4.2 billion.

The Xbox console captured 46 percent of the console market in December. Despite the popularity, the company said the outlook for the market appeared "softer" than expected. For the fiscal third quarter, the company expects entertainment revenue to grow in the "high single digits" compared with 15 percent growth in the second quarter.

Microsoft said that revenue from the business division grew 2.7 percent to $6.3 billion due to strong demand for the company's cloud-based Office 365 suite of office utilities and collaboration tools such as Sharepoint.

Revenue from Microsoft's Windows operating system, however, fell short of expectations due to declining PC sales, with a 6.3 percent decrease in revenue as profit fell 11 percent.

Last week, the company warned that flooding in Thailand has disrupted supplies of hard drives used in computers, impacting PC shipments and software demand. Revenue in the Windows unit fell 6.3 percent to $4.7 billion.

The mixed performance underscores the challenges Microsoft is facing as it navigates the shift in computing from the desktop to mobile devices. The company has to sustain sales of its key software products as it tries to get customers to move to its cloud services.

Microsoft is also trying to catch up in the mobile space, where it has fallen behind competitors such as Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG). The company is due to release a new operating system, Windows 8, in February that will work on both standard PCs and tablet computers.

Revenue for the company's servers and tools products, which form the backbone of enterprise networks and private clouds, jumped 11 percent as the unit's profits improved 17 percent.

In online services, revenue climbed 10 percent. Microsoft has invested heavily in the unit, which includes the Bing search engine.

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