Microsoft meets on strong Vista sales

Operating system sales help offset Xbox charges at the world's largest software company; shares slip.

By Steve Hargreaves, staff writer

NEW YORK ( -- Microsoft reported quarterly earnings Thursday in-line with estimates and revenue slightly higher than expected, as strong sales of its Vista operating system offset charges related to the Xbox game console.

Microsoft (Charts, Fortune 500) shares lost about 2 percent in after-hours trade.


The world's largest software maker reported fourth-quarter earnings of 31 cents per share. That number included a previously announced 8 cent-per-share charge for problems related to its Xbox 360 game console. Without the charge, Microsoft said it would have earned 39 cents per share, in line with estimates from Thomson Financial.

Revenue in the quarter rose 13 percent to $13.37 billion. Analysts were looking for revenue of $13.27 billion.

"It's as few surprises as we're seen in awhile," said Alan Davis, an analyst at D.A. Davidson & Co. "I guess they've had enough surprises with the Xbox."

Earlier this month Microsoft extended the warrantee on the popular game console from one year to three years after a large number of the devices malfunctioned just as the one-year warrantee expired. Davis said the extension is estimated to cost the company $750 million.

He said Microsoft shares, which are trading near a 5-year high, most likely fell when investors did not get an unexpected pleasant surprise.

On a conference call, General Manager of Investor Relations Colleen Healy said sales in the entertainment division declined 10 percent, mostly due to slowing purchases of the Xbox.

In a statement, Microsoft said "this fiscal year marked the general availability of Microsoft's flagship products, Windows Vista and the 2007 Microsoft Office system. Revenue growth was primarily driven by solid customer acceptance of these products, as well as increasing sales of existing products such as SQL Server, Windows Server, Visual Studio, and Xbox 360 consoles."

Looking forward, Microsoft said earnings next quarter should be 38 to 40 cents, while revenue is estimated to be $12.4 billion to $12.6 billion.

The company also edged up its 2008 outlook. The company now predicts fiscal year 2008 earnings of $1.69 to $1.73 per share, up from the $1.68 to $1.72 per share it had estimated last quarter.

It raised its revenue guidance to $56.8 billion to $57.8 billion, up from $56.5 billion to $57.5 billion.

"A healthy PC hardware market and new product offerings will help propel us into the next fiscal year," Chief Financial Officer Chris Liddell said on the conference call.

For the full year 2007, Microsoft said revenue rose 15 percent to $51.12 billion, while earnings per share rose 17 percent. Top of page