Microsoft sales climb but not high enough for some

SEATTLE: Microsoft, the world's largest software maker, reported third-quarter revenue that missed analysts' most optimistic predictions, a sign corporate customers may be putting off buying computers.

Sales rose 6.3 per cent to US$14.5 billion ($20.4 billion), compared with analysts' estimates that were as high as US$14.8 billion for the quarter to March 31.

While Microsoft's Windows business has benefited from increased consumer demand for personal computers, corporations have hung back, avoiding purchases of new machines and long-term contracts.

Investors held out for added evidence of a spending resurgence after chipmaker Intel last week forecast rising sales this quarter and record profit margins for 2010.

"Expectations were for more, given the strength we've seen in PC sales," Brendan Barnicle, an analyst at Pacific Crest Securities, said. Third-quarter net income rose 35 per cent to US$4.01 billion, or 45c a share, beating the average forecast of 42 cents in a Bloomberg survey of analysts.

Sales exceeded the US$14.4 billion average in the survey, reflecting rising demand for Windows 7, the latest version of Microsoft's operating system. Still, some companies are reluctant to place orders that stretch over years. Unearned revenue, a measure of multi-year contracts, was US$12.3 billion. Analysts' average estimate was US$12.8 billion, according to Katherine Egbert, an analyst at Jefferies & Co. Peter Klein, Microsoft's chief financial officer, said: "Consumer demand is still strong, but we also saw for the first time growth in business hardware spending."

Yet, it's still taking longer to close multiyear deals. The company did have growth in billings for multiyear agreements, he said.

"We are starting to fill that pipeline," he said. "I think it will resolve itself over time."

Online advertising revenue rose 19 per cent as search and graphical display ad markets recovered, Klein said. Sales in the company's online business rose 11.6 per cent to US$566 million. Microsoft's Bing search engine has increased the company's share of searches by 3.7 percentage points since Microsoft overhauled the product in June, according to research firm ComScore Inc. Microsoft had 11.7 per cent of the US search market in March, compared with 65.1 per cent for Google and 16.9 per cent for Yahoo, according to ComScore.

- Bloomberg