Buoyed by sales of the Xbox 360 and server software, Microsoft reported first-quarter earnings on Thursday that edged ahead of the company's forecast.
The software giant said it earned $3.48bn (£1.85bn), or 35 cents a share, on revenue of $10.81bn, for the three months ended 30 September. That compares with earnings of $3.14bn, or 29 cents a share, on revenue of $9.74bn for the same quarter a year ago. The year-ago earnings figure included legal expenses that amounted to 2 cents a share.
Microsoft said in June to expect revenue in the range of $10.6bn and $10.8bn, with per-share earnings between 30 cents and 32 cents.
"The solid revenue results for the quarter were at the top end of our expectations," chief financial officer Chris Liddell said in a statement.
For the current quarter, Microsoft said to expect revenue of $11.8bn to $12.4bn and per-share earnings of 22 cents to 24 cents. The outlook is affected by the fact that Microsoft expects to defer $1.5bn in revenue to account for a coupon programme in which buyers of Office and Windows this holiday season will be able to upgrade to Office 2007 and Windows Vista when those products are released early next year. Microsoft said the revenue deferral will affect earnings in the quarter by about 11 cents a share.
Microsoft slightly tweaked its financial outlook for the full year, which runs through June 2007.
The company said it now expects revenue in the range of $50bn to $50.9bn and per-share earnings in the range of $1.43 to $1.46. In July, Microsoft had said to expect revenue between $49.7bn and $50.7bn and diluted earnings per share between $1.43 and $1.47. That included a boost in spending as the company invests in both the launch of Vista and Office 2007, as well as in its online and other emerging businesses.
Microsoft said earnings and sales were boosted by strong responses to the products that Microsoft has launched in recent months, including the Xbox 360 and SQL Server.
"We've had a really nice start to fiscal year 2007," Colleen Healy, Microsoft's general manager of investor relations, said in an interview. "Our businesses that had big product launches over the past 12 months were really the driver."
Microsoft saw gains in all of its business units except its online services unit, which saw its quarterly revenue dip to $539m from $564m a year earlier. It had a quarterly loss of $136m, compared with a $68m profit in the same quarter a year ago.
Sales in the unit that includes desktop versions of Windows climbed to $3.3bn from $3.16bn a year ago, while operating income rose to $2.64bn compared with $2.57bn a year ago. Microsoft's server software unit saw sales hit nearly $2.5bn, up from $2.13bn a year ago, while operating income was $827m, up from $608m a year ago.
The Microsoft Business Division, which includes Office, saw its sales climb to $3.43bn from $3.28bn, as operating income reached $2.25bn, up slightly from the $2.24bn recorded in the year-ago quarter. Microsoft's Entertainment and Devices unit saw sales hit $1.03bn, up from $606m, while the unit's operating loss narrowed to $96m, down from $103m a year earlier.
Microsoft shares dipped slightly in after-hours trading following the earnings release. Shares were trading at $28.28, down 7 cents, or less than 1 percent, after inching up 4 cents during regular trading Thursday. In mid-June, shares were around $21.50.
Healy said that Microsoft also saw good "bookings" in the quarter, referring to the company's sales of software under longer-term contracts. The company saw its balance of unearned revenue dip to $10.1bn from the prior quarter, when it was $10.9bn.
"It was actually down less than we had expected, which I think speaks to the strength and excitement for the pending launches," Healy said. Microsoft is not changing the timeframe for the launch of Vista and Office. Vista is expected to go to large business customers next month and have a broad launch in January, while Office 2007 is scheduled to be available to volume licence customers by the end of the year and hit retail shelves in "early 2007".
"The teams continue to feel they are on track," Healy said. "We're monitoring feedback from our partners and beta testers closely."
