Earnings down 38% at Microsoft

Microsoft Corp said on Thursday that its quarterly earnings fell 38 percent as the company took hefty charges related to legal matters and for expenses related to stock-based compensation.

But the software titan reported healthy revenue gains and beat analysts' expectations for earnings growth once the big charges were excluded.

"The concern about Microsoft ... has been, `Where's the growth?' and there's two quarters back to back that they really seem to have some pretty solid growth," said Jonathan Geurkink, an analyst with Ragen MacKenzie in Seattle.

Microsoft earnings of US$1.32 billion, or US$0.12 per share, for its fiscal third quarter that ended March 31. This compares with earnings of US$2.14 billion, or US$0.20 per share, in the same period a year earlier.

Revenue US$9.18 billion, up 17 percent from US$7.84 billion in the same period a year earlier.

The most recent quarterly earnings included a pretax charge of US$2.53 billion, or US$0.17 per share, for costs related to legal issues. During the quarter, the company reached a US$1.6 billion settlement with Sun Microsystems and received a US$610 million fine from the European Commission.

Another charge of US$748 million, or US$0.05 per share, was for charges related to stock-based compensation.

Without charges, the company would have had earnings of US$0.34 per share. Comparable earnings for the year earlier would have been US$0.26 per share without a one-time charge related to stock-based compensation. Microsoft switched last year to offering employees stock grants rather than stock options.

Analysts by Thomson First Call had been expecting earnings of US$0.29 per share.

John Connors, Microsoft's chief financial officer, said all Microsoft business units met the company's expectations for the quarter, boosted by overall increases in technology spending.

For the current fourth quarter ending June 30, Microsoft said it now expects to have revenue of between US$8.9 billion and US$9 billion.