Microsoft Reports Solid Q2, Raises Outlook

Faced with blizzard of Wall Street negativity, Microsoft on Thursday beat the street's estimates and raised its outlook for its fiscal year, which ends in June.

Driven by continued demand for Windows Vista and Office, Microsoft reported net income of $4.7 billion, or 50 cents a share, for its second quarter, ended Dec. 31. This represented an 80 percent improvement on the $2.6 billion, or 26 cents a share Microsoft racked up during the same period a year ago.

Microsoft's revenue in the quarter jumped to $16.37 billion, up 30 percent from the $12.5 billion the vendor reported during the year-ago period. Analysts polled by Thomson Financial had been expecting net income of $4.35 billion, or 46 cents per share, and revenue of $15.9 billion.

During the year-ago quarter, Microsoft deferred more than $1.1 billion in revenue as a result of delays in releasing Windows Vista and Office 2007, without which today's results would have been even more noteworthy.

Microsoft's Client division revenue grew from $2.67 billion to $4.24 billion year-on-year, driven by sales of Windows Vista, which has now surpassed 100 million licenses, according to Microsoft. Revenue from the Server & Tools division grew from $2.8 billion to $3.3 billion year-on-year.

Revenue from the Microsoft Business Division, whose head, Jeff Raikes, will leave the company in September, grew from $3.5 billion to $4.8 billion year-on-year, driven by healthy demand for Office 2007 and Office Sharepoint Server.

In fact, Sharepoint is now a billion dollar business, and revenue from Sharepoint sales grew 20 percent to 25 percent year-on-year, Microsoft CFO Chris Liddell told analysts in a Q&A session after the call.

"You're seeing a very strong portfolio of products anchored around the Office products, but with some very good secondary ones," said Liddell.

For its next fiscal quarter, which ends in March, Microsoft expects earnings per share of between 43 and 45 cents, and revenue between $14.3 billion and $14.6 billion. Analysts polled by Thomson have estimated 44 cents a share, and revenue of $14.43 billion.

Microsoft delivered monster fiscal first quarter results in October and at that time revised its projected earnings for the full year upward to $1.78 a share and $1.81 a share, with revenue of between $58.8 billion and $59.7 billion.

However, after the strong Q2 numbers, Microsoft raised its forecasts and now expects full-year earnings of between $1.85 to $1.88 a share, with revenue between $59.9 billion and $60.5 billion. Analysts' estimates for the full year had been $1.81 a share with revenue of $59.36 billion. Investors greeted the news by sending Microsoft shares up $1.52 in after hours trading Thursday.

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