Microsoft's Q4 Profit Dampened By Xbox Woes

Earlier this month, Microsoft absorbed a $1.06 billion charge after it decided to extend the Xbox 360 warranty by three years due to a hardware malfunction.

After charges, Microsoft's earnings for the quarter ended June 30 were $3.04 billion, or 31 cents per share, compared with $2.83 billion, or 28 cents per share, during the same quarter last year.

Sales grew 13 percent to $13.37 billion during the quarter, up from $11.8 billion in the same quarter last year, driven by strength in Microsoft's client, business, server and tools divisions.

For its 2007 fiscal year ended June 30, Microsoft racked up revenue of $51.12 billion, or $1.42 per share, up 18% compared to FY 2006.

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Microsoft has seen a shift from licensing sales to annuity sales, due in large part to the growing popularity of Enterprise Agreements, said Chris Liddell, chief financial officer.

Microsoft has continued to see strong adoption of Windows Vista and Office 2007, which launched earlier this year. Advertising revenue was up 33 percent during the quarter, according to Liddell.

In addition to Vista and Office 2007, customers are opting for annuity licensing in order to take advantage of Microsoft's upcoming releases of Windows 2008, SQL Server, Visual Studio, PerformancePoint, and CRM Live, Liddell said.

"There are a lot of different products that are appealing to customers, and staying on annuity helps them from an administrative and cost perspective," he said.

For the current quarter, which ends Sept. 30, Microsoft forecast earnings per share of 38 cents to 40 cents, with revenue of between $12.4 billion to $12.6 billion. Wall Street analysts expect earnings per share of 38 cents and revenue of $12.5 billion for the quarter.

Microsoft upped its fiscal 2008 revenue forecast from $56.5 billion to $57.5 billion to between $56.8 billion and $57.8 billion, and bumped its earnings per share estimate up one cent to between $1.69 to $1.73.

Microsoft also invested $7.1 billion in research and development during its fiscal 2007, up 8 percent from the previous year.