Microsoft Earnings Jump 60% on 'Exceptional' Windows 7 Sales
Consumer Demand Is Back
"This is a record quarter for Windows units," said Kevin Turner, Microsoft's COO. "We are thrilled by the consumer reception to Windows 7 and by business enthusiasm to adopt Windows 7."
After launching the new operating system to plaudits on Oct. 22, Microsoft sold a whopping 60 million licenses for it last quarter, making it the fastest-selling operating system in history, the company said.
Microsoft benefited from robust holiday spending by consumers, after an abysmal year.
"These are outstanding numbers," Brendan Barnicle, analyst at Pacific Crest Securities, told CNBC. "74 cents was comparable to the 59 cents people were expecting, so it was a big beat. The upside was in the Windows business and service and tools and office business. The online business came in line, and the only business shy of expectations was Xbox."
Microsoft's results were boosted by $1.7 billion in deferred revenue from Windows 7 pre-sales earlier in the year. Excluding that figure, the company would have earned 60 cents per share, one more cent than the Thomson Reuters consensus. The strong results powered Microsoft shares as high as 2.5% in after-hours trading, before settling at about 0.5% up.
Waiting For Business Spending
During a a conference call after the report, Klein said, "We are just starting our strongest product cycle ever," referring to the massive operating system upgrades consumers and business will make these year as they transition to the new platform.
Still, despite the strong Windows 7 performance, Microsoft executives said they haven't yet sign an increase in business tech spending. "While consumer demand remains healthy, we have not seen a return to enterprise growth," Klein said.
Indeed, the division that produces the company's Office suite of tools saw revenue decline 3%, while the company's enterprise server software division saw revenue tick up only 2%. Microsoft will introduce a new version of Office this year.
Microsoft executives said the company is still waiting on the Justice Department to rule on its search-ad partnership with Yahoo (YHOO), but they're confident it will be approved and hope the deal will close earlier this year. Many analysts think that deal may represent the last best hope for a truly competitive rival to Google (GOOG), which continues to increase its web search dominance.