Microsoft handily beat Wall Street analyst expectations for its first fiscal quarter earnings and revenue, but saw very steep drops in both its Windows and Windows Live and business division revenue in the runup to Thursday's launch of its long-awaited Windows 7 operating system.
Overall, the Redmond, Wash.-based software company reported net income of $4.48 billion on $12.92 billion in revenue, compared to $6 billion and $15 billion for the same quarter a year earlier. Microsoft also turned in earnings per share of 40 cents (or 52 cents when counting deferred revenue.) The average of Wall Street analyst estimates called for earnings per share of 32 cents on revenue of $12.32 billion.
However, Microsoft saw big declines in key areas in the quarter before Windows 7 went on sale. The company reported that its Windows and Windows Live segment generated revenue of $2.6 billion, compared to $4.3 billion for the same quarter a year earlier. In its Microsoft Business Division, the company turned in revenue of $4.4 billion for the period ending Sept. 30, compared to $5 billion for the same quarter a year earlier.
In several previous quarters, Microsoft had been reporting at-times double-digit percent declines in its client software business, but as of this quarter is reporting its business segments differently - - filing numbers under Windows and Windows Live as well as Microsoft Business Division segments instead.
"We are very pleased with our performance this quarter and particularly by the strong consumer demand for Windows," Microsoft Chief Financial Officer Chris Liddel said in a prepared statement. "We also maintained our cost discipline, which allowed us to drive strong earnings performance despite continued tough overall economic conditions."
In its earnings announcement, Microsoft also said it would reduce its guidance to financial analysts on its operating expenses from $26.5 billion to $26.2 billion for its full year that ends June 30, 2010. Microsoft has been on one of the most aggressive cost-cutting strategies in the history of the company since earlier this year.
Wall Street gave early signs that it was happy with Microsoft's results, as shares of the stock rose more than $2 per share in pre-market trading, to $28.94 after the earnings announcement.
Microsoft executives were scheduled to discuss earnings in detail with financial analysts in a conference call later Friday morning.