Microsoft announced on Friday that its fiscal first-quarter sales sunk compared with a year ago, but it’s tough moves to cut costs and lay off workers enabled the software company earn a profit that surpasses investors’ expectations. Microsoft, the maker of the Windows operating system — including the new Windows 7 version released Thursday — indicated a net income of $3.57 billion, or 40 cents a share, for the quarter, which culminated on September 30th. Wall Street had expected Microsoft to earn 32 cents a share, quoted a report according to a Thomson Reuters survey.
Microsoft credited part of its rebound to increasing sales of PCs by consumers. While total PC sales were mostly flat in the quarter, compared with a year earlier; consumer sales worldwide hiked by a percentage that was in the mid-single digits. The gains came despite the rise of netbooks, small laptop computers, which have generally used inexpensive versions of Windows XP. Netbooks represented 12 percent of sales to consumers in the quarter, Microsoft added.
The company was aggressive on Windows 7, in part because of thumping advance sales. Indeed, the company deferred $1.47 billion in revenue from presales. Sans that deferral, Microsoft said it would have pocketed 52 cents per share in the first quarter instead of 40 cents. The financial results were revealed before the market opened, and investors quoted Microsoft’s shares up more than 5 percent Friday, to $28. 02.
They expected to see some positive impact from Windows 7, but it is the first it has been crystallized in the numbers. Microsoft hopes to benefit not only from rising demand but also from increasing prices for consumers. A netbook maker will shell out more to install Windows 7 than it would have for Windows XP. And in developed countries, Microsoft has stroked off the low-cost Windows Home Basic, forcing a shift to the more expensive Windows 7 Home Premium. Sales of business computers may be scanty, but Microsoft said it saw some indications that companies would start to replace older machines with Windows 7 models over the next few years.
The software giant reported total revenue of $12.92 billion for the quarter, a 14 percent decline from a year back. Reported sales of Windows sunk by 39 percent because Microsoft will not count revenue on computers sold with the hope of a free upgrade to Windows 7 until the current quarter. Adding the delayed sales back in, Windows sales were $4.1 billion, down 4 percent from a year ago. The company’s sales of software for corporate servers were the same from last year at $3.4 billion. Sales of Office and other business software sunk by 11 percent; to $4.4 billion. That is a lower decline than some investors had thought it to be. Analysts were also contended that the sales at Microsoft’s entertainment and device business were also low for the year at $1.9 billion, given leverage by better-than-expected Xbox game sales.
Despite the large investment in its Bing search engine, revenue from Microsoft’s online operations went down by 6 percent, to $490 million. That unit was Microsoft’s only division to squander money, and the loss of $480 million was 50 percent greater than last year.
Microsoft gave guidance in very huge strokes for the rest of fiscal 2010. It said sales of Windows would be associated with growth in the PC market. Sales of Office and other business products are expected to fall behind the overall PC market. Online ad sales are to commensurate or exceed the online market. Server software sales are expected to grow a little faster than server shipments. And sales of Xbox consoles, games and other consumer devices are likely to be low next year.
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