Microsoft: Revenue up, income down

IDG News Service — Thu, 24 Apr 2008 17:19:42 -0700

Microsoft Thursday posted fiscal third-quarter revenue of US$14.45 billion but showed a $228 million loss in its online and services group, which is perhaps further evidence that a Yahoo acquisition may be its best hope to effectively battle rival Google.

In addition, Microsoft's net income for the quarter was off 10% from $4.9 billion in the third quarter of fiscal 2007 to $4.3 billion in the same quarter this year.

The losses in the online business group were a 33% increase over a loss of $171 million in the same quarter a year ago.

Microsoft revenue gains, which fell short of analysts' expectations of $14.49 billion and caused the stock to tumble nearly 5% in after-hours trading, was driven by revenue growth of 68% in the entertainment and devices division compared with the same quarter in 2007. Microsoft said Xbox showed a strong sales increase, outselling Sony PlayStation 3 by more than 1 million units in the quarter.

Microsoft's deadline for launching a hostile takeover of Yahoo is Saturday, but CEO Steve Ballmer said in Milan Wednesday that Microsoft is "prepared to move forward without merging with Yahoo" if the deal is not worked out to Microsoft's liking.

The comments come amid weeks of posturing between Microsoft and Yahoo, which has said Microsoft's $44.6 billion offer is too low.

Chris Liddell, Microsoft's chief financial officer, reiterated that stance on the earnings call Thursday evening, saying the company would either take its offer to Yahoo shareholders or "withdraw our proposal and focus on other opportunities like organic [in-house] and in-organic [acquisition] growth."

The financial results come a day after Microsoft announced a major initiative in its online services business called Live Mesh, which includes file sharing, synchronization services and a development environment.

Microsoft's net income loss was attributed to a one-time event in the third quarter of 2007 when the company booked $1.6 billion in revenue deferred from the second quarter of 2007 that was attributed to delays in shipments of new versions of Windows and Office.

Microsoft said it posted growth of 18% in its server and tools business, the 23rd straight quarter of double-digit growth. The company said sales of premium versions of Windows Server and SQL Server were strong as were sales of annuity contracts.

The company said Software Assurance, the company's maintenance program and heart of its annuity contracts, drove unearned revenue in the server and tools division to a 35% increase over the same quarter a year ago.

In the quarter, Microsoft launched Windows Server 2008 and will ship SQL Server 2008 by June 30.

The company also announced that it has sold 140 million Vista licenses.

Heading into the fourth quarter of 2008, Microsoft estimated that overall 2008 revenue would be in the range of $66.9 billion to $68 billion, and operating income would be between $26.7 billion to $27.4 billion.