Microsoft Tops Street in 2Q; PC Sales Up

Microsoft Corp. forecast a rosy 2008 -- despite broader economic worries -- after it blew by Wall Street's expectations for a second consecutive quarter.

"We will be impacted just like everybody else," if the U.S. falls into a recession, Chief Financial Officer Chris Liddell said Thursday. "But overall, we feel very optimistic about our second half."

Company officials touted rising sales in each of Microsoft's business divisions, a slate of important upcoming business-software launches and the growing contribution from sales in non-U.S. markets.

Microsoft raised its outlook Thursday for the rest of its fiscal year, which ends in June, matching Wall Street's forecast and sending shares up in after-hours trading.

The software maker's quarterly earnings jumped 79 percent to $4.71 billion, or 50 cents per share, from $2.63 billion, or 26 cents per share in the second quarter a year earlier. Quarterly revenue climbed 31 percent to $16.37 billion from $12.5 billion.

The comparison isn't entirely fair -- last year, Microsoft deferred more than $1 billion in revenue due to delays in getting Windows Vista to consumers.

Wall Street had been looking for a profit of 46 cents per share on $15.95 billion in sales.

Better-than-expected worldwide PC shipments, tougher anti-piracy measures and growing numbers of businesses switching to long-term volume software licenses helped boost revenue for the two Microsoft divisions responsible for Windows and Office to a total of $9.14 billion, 50 percent more than a year ago.

The division responsible for the Xbox 360 video game system swung to a profit on rising sales of games and accessories, which deliver better margins than the console itself. Microsoft said the division is still on track to be profitable in fiscal 2008.

The weakest spot was Microsoft's online services business, which competes with Google Inc. to sell advertising on the Web. Sales rose 38 percent, but the division widened its loss in the quarter to $245 million, from $118 million a year ago, dragged down in part by its acquisition of online ad company aQuantive Inc.

"Think about the revenue several years out and the infrastructure we're building for that," Liddell advised financial analysts in a conference call.

In the back half of the fiscal year, Microsoft is set to release new versions of a number of key franchises, including Microsoft Server 2008 and the SQL Server 2008 database system. Liddell said he also expects PC shipments to remain strong, driving sales of Windows Vista and Office.

"It looks like a very nice report," said Sarah Friar, an analyst for Goldman Sachs, in an interview.

While economic jitters haven't hit tech companies yet, Friar warned that information technology executives are shaving their 2008 budgets and may buy less from Microsoft. The company makes more profit from its business licenses than on sales to consumers, she noted.

Microsoft nevertheless boosted its full-year outlook and now predicts a profit of $1.85 to $1.88 per share on sales of $59.9 to $60.5 billion. Earlier, the company forecast earnings of $1.78 to $1.81 per share on $58.8 billion to $59.7 billion in sales.

For the current quarter, which ends March 31, Microsoft said it expects to earn 43 to 45 cents per share on $14.3 to $14.6 billion in revenue.

Shares of Microsoft jumped 5 percent, or $1.69, to $34.94 at the open of trade Friday.

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