Microsoft reports powerful performance

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BusinessTech.co.za/ Reuters - Oct 25th, 09:58

Microsoft Corp cruised past Wall Street’s quarterly profit and revenue forecasts on Thursday, helped by strong sales of its Office and server software to businesses, sending its shares up more than 5 percent after hours.
 

The world’s largest software company is the latest tech firm to surprise investors with a powerful performance, coming the same day as Amazon.com Inc eased past average revenue forecasts.

Technology is proving one of the most resilient sectors in an uncertain economy, with 84 percent of tech companies beating earnings estimates for the latest quarter.

Analysts had trimmed profit targets for Microsoft over the past three months, concerned by the launch of an ambitious reorganisation by retiring Chief Executive Steve Ballmer and the pricey acquisition of Nokia’s handset business, even as the company’s core personal computer market ebbs away.

“The earnings report will positively surprise the market, especially in the context of the soft expectations going in and the dismal report last quarter,” said Todd Lowenstein, a portfolio manager at fund firm HighMark Capital.

“Beating on revenue and earnings handily will boost confidence that the reorganisation is pivoting them in the right direction.”

Microsoft said nothing about its board’s search for a new CEO to succeed Ballmer, who announced in August his plan to retire within 12 months.

As part of its reinvention as a “devices and services” company, Microsoft now reports under two main groups, one covering its devices and consumer business, and one its commercial business.

The commercial side was the stronger in the quarter, posting a 10 percent increase in revenue, chiefly from selling Office and server software to businesses. The consumer and hardware group’s revenue rose a more modest 4 percent, held back by another poor quarter for the Windows system as sales of personal computers continue to decline.

PCs fade away

According to industry research firm Gartner, PC shipments fell 8.6 percent last quarter, confirming a worldwide trend towards tablets that has benefited Apple Inc and Google Inc but hurt traditional PC stalwarts Microsoft and Intel Corp.

PC sales have been sliding for the last 18 months, although Microsoft Chief Financial Officer Amy Hood said in an interview on Thursday that there were “signs of stabilization.”

Sales of Windows software to PC makers, such as Hewlett-Packard Co, Lenovo Group and Dell Inc, to install on their machines fell 7 percent in the quarter.

Microsoft said its Surface tablet posted a sharp increase to $400 million in sales, largely due to rising interest in the smaller, heavily discounted Surface RT model.

Overall for the fiscal first quarter, Microsoft posted a 17 percent increase in profit to $5.2 billion, or 62 cents per share, up from $4.5 billion, or 53 cents per share, in the year-ago quarter.

That topped Wall Street’s average forecast of 54 cents, according to Thomson Reuters I/B/E/S, although analysts had been edging down estimates for the last three months.

Revenue rose 16 percent to $18.5 billion, helped by rising sales of its Office software. Analysts had expected $17.8 billion, on average.

Hood, who took over as CFO only in May, issued the most detailed financial guidance from the company in several years in a conference call with analysts. For the fiscal second quarter, which takes in the crucial holiday shopping season, Hood forecast revenue of $23.1 billion to $24.1 billion, ahead of analysts’ average forecast of $22.9 billion.

“As we look forward to the second quarter, our enterprise business will remain strong, and we are also set up for fantastic holiday season with Surface, Xbox One and a host of devices from our partners,” said Hood on the call.

Microsoft shares rose to $35.60 after hours, after closing at $33.72 on Nasdaq. Before the profit figures were announced, the shares were up 21 percent over last 12 months, compared to a 24 percent gain in the Standard & Poor’s 500.
BusinessTech.co.za/ Reuters