Microsoft Corp pleased investors on Thursday by topping income estimates for its fiscal fourth quarter, despite a steep income drop, and announced plans to buy back at least US$20 billion in shares.
For the three months ended June 30, Microsoft earned US$2.83 billion, or US$0.28 per share. That was a 24 percent drop from earnings of US$3.7 billion, or US$0.34 per share in the same period last year.
Revenue for the quarter was US$11.8 billion, up 16 percent from US$10.16 billion in the same period a year earlier. Analysts polled by Thomson Financial were expecting earnings of US$0.30 per share on revenue of US$11.63 billion.
Those expectations were reduced after Microsoft said in April that it expected earnings for the fiscal fourth quarter and 2007 fiscal year to be lower than many had previously expected. The company blamed the change on a decision to significantly boost research and development spending in areas where it is not dominant.
Microsoft also said on Thursday that it plans to repurchase as much as US$20 billion worth of shares by Aug. 17 in a tender offer.
Under its plan, the company said it will take offers to buy shares within the range of US$22.50 and US$24.75, in a tactic similar to a reverse auction. Based on the offers it receives, the company will come up with a strike price that allows it to buy US$20 billion worth of the shares.
Microsoft will not buy shares below the price a shareholder offered to sell them for, and in some cases could pay more than the price a shareholder offers.
The company said its board also had authorized it to spend as much as US$20 billion on more traditional stock repurchases by June 2011. And it said it had already completed a previously announced US$30 billion stock repurchase program.
"We think this gives investors confidence in Microsoft's future," said Andy Miedler, an analyst with Edward Jones.
Microsoft chief financial officer Chris Liddell said the company decided on the buyback plans because it saw that it had excess cash on hand that it didn't think it would immediately need for things like legal expenses and acquisitions.
Still, analysts said the company needed to prove to investors that it could effectively battle online and other competitors who appear increasingly to be encroaching on its Windows and Office franchises.
For the full 2006 fiscal year, Microsoft reported earnings of US$12.6 billion or US$1.20 per share on revenue of US$44.28 billion. That compares with earnings in the previous fiscal year of US$12.25 billion or US$1.13 per share on sales of US$39.79 billion.
For the current fiscal first quarter ending in September, Microsoft said it expects to earn between US$0.30 and US$0.32 per share, on revenue of between US$10.6 billion and US$10.8 billion.
For the 2007 fiscal year, the company forecast earnings of between US$1.43 and US$1.47 per share, on revenue of between US$49.7 billion and US$50.7 billion. That earnings guidance was higher than previously forecast, but Liddell said in an interview that the change was mainly due to the planned US$20 billion tender offer.
In a conference call with ana-lysts, Liddell also said a further delay in the release of the new version of Windows would not likely have a significant impact on revenue because of longer-term licenses and other factors. Windows Vista is currently scheduled to be released to consumers in January.
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