Microsoft Results Unimpressive

Microsoft Corp. (NASDAQ: MSFT) reported fiscal 2013 first-quarter results after markets closed today. For the quarter, the world's largest software company posted diluted earnings per share (EPS) of $0.53 on adjusted revenues of $17.36 billion. In the same period a year ago, the company reported EPS of $0.68 on revenues of $17.37 billion. Third-quarter results compare to the Thomson Reuters consensus estimates for EPS of $0.56 and $16.42 billion in revenues.

On a GAAP basis, excluding deferred revenue on Windows upgrade offers, Windows 8 pre-sales and an Office offer, revenues totaled $16.01 billion.

The company's CFO said:

While enterprise revenue continued to grow and we managed our expenses, the slowdown in PC demand ahead of the Windows 8 launch resulted in a decline in operating income. Multi-year licensing revenue grew double-digits across Windows, Server & Tools, and Microsoft Business Division products as businesses commit to our technology roadmap.

Microsoft reaffirmed fiscal 2013 operating expense guidance of $30.3 to $30.9 billion. The company offered no other comments on guidance, but the consensus estimate for EPS in the second fiscal quarter is $0.87 on revenue of $23.01 billion, a sharp increase due to the coming release of Windows 8 and related software. For the full-year Microsoft is expected to post EPS of $2.99 on revenue of $80.06 billion.

The company noted that its online services division revenue rose 9% and that online advertising revenue rose 15%. In its entertainment and devices division, which includes the Xbox, revenue fell 1% year-over-year, but Microsoft offered no explanation for the decline.

In the Windows & Windows Live division, GAAP revenue fell 33%, though adjusting for the Windows Upgrade offer and presales, the decline was reduced to 1%. Windows 8 will become generally available next Friday, October 26th.

Operating income for the first quarter came in at $5.31 billion, down 36% from $7.2 billion in operating income in the same period a year ago.

The deferred revenue adjustment the company took this quarter made a lousy quarter look a little better. But the consensus revenue forecast for next quarter is a third higher than first quarter revenue. Sure Microsoft will sell truckloads of Windows 8, but the business doesn't look so hot anywhere else. And lots of those Windows 8 sales will be the cheap upgrades, which won't help revenues either.

Microsoft's shares are down about 2.6% in after-hours trading at $28.75 in a 52-week range of $24.30 to $32.95. Thomson Reuters had a consensus analyst price target of around $35.58 before today's report.

Paul Ausick

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