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Microsoft Corp lifted its full-year estimates and posted a 23 per cent rise in quarterly profit today, topping investor expectations on strong demand for Halo 3 and Windows Vista, and sending its shares up 11 per cent.
The world's largest software maker raised full-year revenue forecasts across its business units and gave a bullish profit forecast for the current quarter, which includes the crucial holiday shopping season.
Investors have waited for sales of Microsoft's new Vista operating system to pick up since it was released in January. Windows, which sits on more than 90 per cent of computers, generates almost 80 cents in profit for every dollar in sales.
"The growth of Windows Vista has finally occurred," said Kim Caughey, senior analyst at Fort Pitt Capital Group.
Microsoft's Halo 3, the latest installment of its flagship shooter franchise video game, also racked up more than US$300 million ($400 million) in its first week of sales in September.
In the just-reported fiscal first quarter, Microsoft beat even Wall Street's most bullish forecast with a net profit of US$4.29 billion, or 45 cents per diluted share, up from US$3.48 billion, or 35 cents per diluted share, a year earlier.
Revenue rose 27 per cent to US$13.76 billion in the three months ended September 30.
Analysts, on average, had forecast 39 cents per share in profit with estimates ranging from 38 cents to 40 cents per share on revenue of US$12.54 billion, according to Reuters Estimates.
"It looks like it was a blowout quarter," said Toan Tran, analyst at Morningstar. "It looks like they're firing on all cylinders. Windows, Office ... all grew by 20 per cent and they're the big hitters for Microsoft."
Shares of Microsoft, already up 10 per cent in the last month, surged another 11.4 per cent to US$35.63 in after-hours trade from their Nasdaq close of US$31.99. The market capitalisation of Microsoft increased by about US$35 billion and its largest shareholder, co-founder Bill Gates, saw his fortune grow by US$3 billion.
Microsoft raised its full-year revenue outlook for all of its five business segments including its Windows client sales to a range of between 12 per cent to 13 per cent versus its previous forecast of 9 per cent to 10 per cent.
Market research firms Gartner and IDC said global personal computer shipments rose about 15 per cent in the September quarter, which helped Microsoft as well as the quarterly results of chip maker Intel Corp.
Revenue at Microsoft's Windows client division, focused on PCs, rose nearly 25 per cent in its fiscal first quarter. Operating profit at the segment went up 27 per cent to US$3.37 billion.
Consumers also bought Xbox 360 consoles to play Halo 3, vaulting Microsoft's game machine past rivals in September.
The entertainment and devices division, which has posted six straight annual losses, delivered a 91 per cent rise in revenue and the segment swung to profit of US$165 million from a loss of US$142 million a year earlier.
Microsoft raised full-year earnings estimates to a range of US$1.78 to US$1.81 per share from a previous range of US$1.69 to US$1.73. It also raised its full-year revenue estimate range by almost US$2 billion, to US$58.8 billion to US$59.7 billion.
Wall Street analysts, on average, were forecasting fiscal 2008 earnings of US$1.73 per share on revenue of US$57.3 billion.
"Microsoft is never going to be aggressive on guidance. Even from a conservative perspective, it looks to be a pretty positive forward view," said Eric Schoenstein, co-portfolio manager at Jensen Portfolio.
Those figures also include a US$85 million impact, or 1 cent per diluted share, from costs and expenses related to its US$6 billion acquisition of digital advertising firm aQuantive.
For the current quarter, Microsoft forecast earnings in a range of 44 cents to 46 cents per diluted share on revenue of US$15.6 billion to US$16.1 billion.
Analysts, on average, were forecasting earnings per share of 44 cents a share on revenue of US$15.5 billion in Microsoft's fiscal second quarter, according to Reuters Estimates.
The holiday quarter is a crucial one for Microsoft as it aims to spur adoption of new computers running its latest Windows Vista operating system. Its entertainment arm also counts on the December quarter generating twice as much revenue as any other quarter of the year.
The company's online services group lost money for a fifth-straight quarter despite a 25 per cent rise in revenue from a year earlier helped by an US$80 million revenue boost from aQuantive, which became part of Microsoft in August.
Microsoft's Office business posted a 20 per cent increase in revenue to US$4.11 billion and profit rose 21 per cent.
- REUTERS
