Microsoft Pleases the Nay-sayers

Microsoft (MSFT): $0.26 EPS vs $0.23 estimates; Revenues $12.54 Billion versus $12.1 Billion estimate.  The deferred revenues were $1.64 Billion above the higher-end of estimates.  The company is making Windows Vista available next week.

Last quarter it had guided Revenue in the range of $11.8 billion to $12.4 billion, which reflects approximately $1.5 billion of revenue deferrals; Operating income $2.9 billion to $3.1 billion; Diluted EPS $0.22 to $0.24, which included an $0.11 per share impact for deferrals.

NEXT QUARTER GUIDANCE: Revenue is expected to be in the range of $13.7 billion to $14.0 billion, operating income of $6.1 billion to $6.3 billion; EPS 0.45 to $0.46, which includes a $0.12 earnings per share impact due to revenue recognition.  STREET ESTIMATES are $0.46 EPS and $14 Billion (rounded up).  This will seem light to many, but the company has been guiding soft and delivering higher. 

GUIDANCE FOR FISCAL JUNE 30 2007: Revenue is expected to be in the range of $50.2 billion to $50.7 billion. Operating income is expected to be in the range of $19.3 billion to $19.7 billion.  Diluted earnings per share are expected to be in the range of $1.45 to $1.47.  Last quarter it gave this guidance for the fiscal year for comparison: For fiscal 2007 (June 30) it had guided Revenue range of $50.0 billion to $50.9 billion, Operating income is expected to be in the range of $19.1 billion to $19.5 billion, Diluted earnings per share are expected to be in the range of $1.43 to $1.46.

Because of Windows Vista, Strong Xbox 360 results, strong results, and a perception that guidance is being kept soft the shares are up 3.5% at $31.50 after-hours.  It closed down 2% at $30.45 in regular trading.  Many were expecting this to trade off since the stock is up more than $4.00 from the start of the quarter.  We’ll see if sells off or not after all the metrics come out and after it hints at Vista projections, but the stock is not being deemed as expensive by many and the Vista launch and new Office suite launch may take shares much higher.  Also Gears of War and the upcoming Halo 3 launch later this year might actually help the Xbox operations become a profitable unit on its own after 6 years of losses.

Jon C. Ogg
January 25, 2007