Microsoft Corp beat Wall Street’s expectations with a 51 percent jump in quarterly profit, as higher sales of its flagship Windows and Office software knocked down fears Apple Inc’s iPad would take a bite out of its main business.
The quarterly profit growth was helped by the launch of the latest blockbuster Halo video game, but exaggerated by the deferral of some Windows revenue in the year-ago quarter and flattered by comparison to last year, when the economy was only just emerging from the downturn.
Microsoft’s Windows 7 has sold a record-breaking 240 million copies since its launch a year ago and its Office suite of applications, which debuted this spring, is off to a strong start.
However, its online services division — which contains the Bing search engine and MSN portal — was the weakest point in the company’s quarter, with its loss widening 17 percent to US$560 million. The unit, which is investing heavily in an attempt to catch up with search advertising leader Google and now powers Yahoo Inc Web searches, has lost US$6 billion in the last five years.
However, the company had not seen any adverse effect on sales of computers running Windows due to Apple’s popular iPad tablet device, which is close to selling 8 million units, chief financial officer Peter Klein said.
“We haven’t seen that at all,” Klein said. “Analysts who have done research on it, largely think this [the tablet market] is additive to PC markets as opposed to instead of PCs.”
The world’s largest software company posted a profit of US$5.4 billion, or US$0.62 per share, for the fiscal first quarter ending on Sept. 30, up from US$3.6 billion, or US$0.40 per share, in the year-ago quarter. That beat Wall Street’s average forecast of US$0.55 per share, according to Thomson Reuters I/B/E/S.
Sales rose 25 percent to US$16.2 billion, ahead of analysts’ US$15.8 billion average forecast.
Klein said companies were continuing to buy new computers, maintaining the recovery in tech spending, but consumers were not so strong.
“We feel very good about the business refresh,” Klein said. “On the consumer side, it probably was a little bit less than people had anticipated, but it was still growth.”
As it accepts that it will likely not recapture its go-go growth of the 1990s, Microsoft has recently adopted a keen focus on cost control and profit margins. It cut 5,800 jobs last year and recently told its remaining 89,000 employees they will have to contribute to their healthcare costs for the first time in 2013.
Microsoft stuck to its forecast of US$26.9 billion to US$27.3 billion in operating expenses this fiscal year.
“The company is sticking to its new-found religion on expenses,” said Kim Caughey Forrest, senior analyst at Fort Pitt Capital.
“It used to be ‘Let’s throw everything at it and not care how much it costs.’ That’s great if you’re growing gangbusters, but now we’re seeing growth with margins and that’s what we want to see as investors,” Forrest said.
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