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April 26 (Bloomberg) -- Microsoft Corp., the world's biggest software maker, said third-quarter earnings rose 65 percent on sales of its new Windows and Office programs. The shares advanced after the company said revenue may top analysts' estimates next fiscal year.
Net income climbed to $4.93 billion, or 50 cents a share, from $2.98 billion, or 29 cents, a year ago, beating the 46-cent average projection of 20 analysts surveyed by Bloomberg. Sales increased 32 percent to $14.4 billion, the company said today.
Sales of Windows and Office software surged, helped by $1.67 billion in orders held over from the previous quarter for accounting reasons. Revenue growth may reach 14 percent for the year that starts July 1, allaying concern about purchases of the new Windows Vista after Chief Executive Officer Steve Ballmer in February said some forecasts were too high.
``The negativity on Vista was just so horrible that this has got to look better,'' said Jane Snorek, a portfolio manager at First American Funds in Minneapolis, which oversees $55 billion including Microsoft shares. ``Microsoft is seeing good Vista uptake and healthy Office '07 uptake.''
Microsoft shares added $1.19, or 4.1 percent, to $30.29 in extended trading. They rose 11 cents to $29.10 as of 4 p.m. New York time in Nasdaq Stock Market composite trading. The stock fell 6.7 percent in the quarter, while the Standard & Poor's 500 Index rose 0.2 percent. The shares had beaten the S&P 500 the two previous earnings periods on enthusiasm for Vista.
Profit Concerns
Microsoft said sales next year will rise to $56.5 billion to $57.5 billion, which may exceed the $56.6 billion average analyst estimate. Profit will be in line, increasing to $1.68 to $1.72 a share, compared with an estimate of $1.70.
Investors had expected Microsoft's profit forecast to trail estimates on lower Windows Vista sales and higher costs for the Xbox video-game system.
``What we're seeing both in the numbers for this quarter and in the guidance for next year is that Vista is going to be a catalyst for this company, more so than maybe some of the negative buzz we've seen recently,'' said Charles Di Bona, an analyst at Sanford C. Bernstein & Co. in New York. He rates the shares ``outperform'' and doesn't own them.
Microsoft is changing its accounting around Windows Vista, which will boost sales by $660 million next year, Chief Financial Officer Chris Liddell said in an interview. Some analysts hadn't figured on the change or had estimated too low, he said. The change is also boosting sales by $220 million this year.
Xbox, Google
Ballmer, 51, is boosting spending as the company works to draw more users to its Internet services and develop its search engine to compete with Google Inc. Operating expenses and the costs of goods sold, which is mainly made up of Xbox, will be higher than some analysts estimated, Liddell said.
Microsoft's cost of good sold will increase more than $600 million because of higher network costs to support Internet services, an increase in consulting services and rising sales of Xbox and the Zune music and video player.
For this quarter, profit will be 37 cents to 39 cents on sales of $13.1 billion to $13.4 billion. That compares with analyst estimates of 41 cents and $13.4 billion in sales. Profit was 28 cents on sales of $11.8 billion a year ago.
Vista Impact
Net income last quarter included 2 cents a share of tax benefits and 1 cent of legal charges.
Vista pushed revenue in the unit that sells Windows for PCs to exceed Microsoft's forecast by $300 million to $400 million last quarter, Liddell said. Sales of Office 2007 spurred results in the business division to beat company forecasts by $200 million, he said.
Microsoft doesn't expect a similar jump in the fourth quarter, Liddell said. The company also pushed some sales and marketing spending from the third quarter to the fourth, he said.
The PC market's growth rate will be in the ``mid-single digits'' next fiscal year, and PC Windows sales will rise at the same pace or slightly faster, Liddell said on a conference call.
Microsoft released its new Windows Vista and Office 2007 broadly on Jan. 30. Ballmer in February met with analysts in New York to give them a preview of today's formal forecast. He said ``people are somewhat too bullish'' on Vista revenue.
Many corporate upgrades to Windows have been sold in the form of multiyear agreements, lessening the potential for a steep gain in sales from Vista, Ballmer said in February. The biggest rise in consumer sales is coming this year, rather than the sharp uptick next year that some predicted, he said.
The comments left analysts unsure which estimates were too high. UBS AG's Heather Bellini and Brendan Barnicle at Pacific Crest Securities were among the few to trim their projections.
Analyst estimates for Vista sales in the coming year have come down since Ballmer's February speech and are now ``more in line'' with what Microsoft expects, Liddell said.
``The general investor expectation was that the forecast for fiscal year 2008 would be below the average analyst estimate, so people are relieved,'' said Ken Allen, an analyst at Baltimore- based T. Rowe Price Associates Inc. His firm is the seventh- biggest institutional holder of Microsoft shares.




Source:Bloomberg.com: Worldwide

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