Microsoft Corp reported a drop in earnings Thursday for its fiscal second quarter, as the software giant took a huge charge for stock-based compensation for employees. But revenue increased 19 percent as the company saw signs of improvement in corporate technology spending.
For the quarter ended Dec. 31, Microsoft reported earnings of US$1.55 billion, or US$0.14 per share, down from earnings of US$1.87 billion, or US$0.17 per share, in the year-ago period.
But earnings for the three-month period included an after-tax charge of US$2.17 billion, or US$0.20 per share, in expenses related to the stock-based compensation.
Without the charge, the company would have had earnings of US$0.34 per share. Analysts polled by Thomson First Call had expected earnings of US$0.30 per share.
The Redmond, Washington-based technology company reported record revenues of US$10.15 billion, up 19 percent from revenues of US$8.54 billion in the same period one year earlier.
Because its once-soaring stock price had remained relatively flat, Microsoft switched last year to offering employees stock grants instead of stock options.
Microsoft chief financial officer John Connors said Thursday that the company saw strong demand for its Windows XP and Office products during the quarter, thanks to increased demand for personal computers, as the overall corporate information technology market began to show signs of recovery.
"Across the board we had a great quarter," Connors said in an interview.
Microsoft slightly increased its forecast for the full fiscal year, to profits of US$0.82 to US$0.83 a share, including a charge of approximately US$0.35 to account for expenses related to the stock-based compensation. It previously had forecast earnings of US$0.86 to US$0.88 per share, including a charge of US$0.24 per share.
For the 12-month period that ends June 30, the company said it expects revenue to be between US$35.6 billion and US$35.9 billion. Previously, it said it expected revenue of US$34.8 billion to US$35.3 billion.
Connors said both consumer and business demand for personal computers appears to be improving, although he cautioned that "people are still cost-conscious" in the wake of a massive downturn in technology spending.
For the current fiscal third quarter, the company said it expects earnings per share to be between US$0.23 and US$0.24, including a charge of approximately US$0.05 for stock-based compensation. Microsoft forecasts revenue of US$8.6 billion to US$8.7 billion for the quarter. Analysts were generally favorable.
"Overall, just looking at top-line growth of 19 percent, I thought it was pretty impressive," said Jonathan Geurkink, an analyst with Ragen McKenzie in Seattle.
But, Geurkink noted, the company's balance sheet took a hit with a decline in unearned revenue -- proceeds from contracts that are recognized as revenue over time.
That decline of US$395 million from the previous quarter reflects on the company's ability to sign up customer for long-term, sustainable business, he said.
Jamie Friedman, an analyst with Fulcrum Global Partners, agreed there was some weakness in unearned revenue, but said Microsoft's guidance for the coming quarters was strong.
On balance, he said, "You come out with numbers that look pretty good to me."
For the six months ended Dec. 31, Microsoft reported earnings of US$4.16 billion, or US$0.38 per share, on revenue of US$18.37 billion. That compares with earnings of US$3.91 billion, or US$0.36 per share, on revenue of US$16.29 billion, a year earlier.
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