Deferred revenue drives Microsoft to solid Q3

Deferred Vista, Office revenue drives Microsoft to 32 percent growth in fiscal third quarter.

Deferred revenue from the release of Windows Vista and Office 2007 helped Microsoft increase revenue 32 per cent year over year for its fiscal third quarter, with the company reporting $US14.4 billion in revenue for the three months ended March 31.

After taking into account $US0.02 in tax benefits and $US0.01 in legal charges, earnings per share for the quarter were $US0.49, which was $US0.03 higher than estimates from Thomson Financial analysts. Revenue was slightly higher than Microsoft expected for the quarter; the company had predicted revenue in the range of $US13.89 billion and $US14 billion. Last year, the company earned $US10.9 billion in revenue for the same period. Microsoft also beat its own guidance for EPS, which had been in the range of $US0.45 to $US0.46.

After delaying the release of both its Vista client OS and Microsoft Office 2007 from its fiscal second quarter to early in its third quarter, Microsoft deferred $US1.67 billion of revenue and operating income, $US1.14 billion of net income and $US0.12 of diluted earnings per share into the third quarter. This had a positive effect on the quarter's results.

Wall Street analysts had expected an in-line quarter for the company, as Microsoft had played down the revenue impact from Vista so the company would not get slammed by the street if earnings were less than anticipated. However, Vista did a little better than the company predicted. This drove revenue up slightly higher than estimates.

Net cash flow from operations was $US7.29 billion for the quarter, and Microsoft returned $US7.72 billion in cash to shareholders through share buybacks and dividends in the quarter.

The company continued its conservative trend for its fiscal fourth quarter guidance. It expects revenue from $US13.1 billion to $US13.4 billion, and diluted EPS in the range of $US0.37 to $US0.39 for the quarter, which ends June 30.

Microsoft also made predictions for its next fiscal year, which ends June 30, 2008. Microsoft expects revenue in the range of $US56.5 billion to $US57.5 billion, and diluted EPS from $US1.68 to $US1.72.

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Elizabeth Montalbano

IDG News Service

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