Microsoft Q4 profit up slightly despite Xbox charge

Microsoft reported net income of US$3.04 billion

Microsoft managed to earn a slight profit for its fiscal 2008 fourth quarter despite a billion-dollar-plus charge related to expenses the company incurred to fix faulty Xbox360 consoles.

For the quarter that ended June 30, Microsoft reported net income of US$3.04 billion compared to net income of US$2.83 billion for the same period last year. Diluted earnings per share for the quarter were US$0.31, a number that took into account a previously announced charge related to extending warranties for its Xbox 360 console. Excluding that charge, EPS for the quarter was US$0.39, in line with estimates from Thomson Financial analysts.

Revenue for the quarter was up 13 percent at US$13.37 billion, compared to revenue of US$11.8 billion for the same period last year.

In a statement, Microsoft attributed revenue growth to demand for its new client OS Windows Vista, as well as business products such as SQL Server and Windows Server. Microsoft's Visual Studio developer tools and Xbox360 consoles also did well in the quarter, the company said.

Microsoft said earlier this month it would take an earnings charge of more than US$1 billion for its fourth quarter related to expenses for expanding its warranty coverage to Xbox 360 customers who have a certain type of hardware failure, which required an "unacceptable" number of repairs to the consoles.

In a conference call Thursday, Microsoft gave the specific figure for the charge -- US$1.06 billion, which fell in the US$1.05 billion to US$1.15 billion range the company predicted.

Microsoft revenue also was up for the year and topped US$50 billion for the first time. For the 2007 fiscal year ended June 30, revenue was US$51.12 billion, a 15 percent increase over the prior year when the company reported US$44.28 billion.

Diluted earnings per share for the year were US$1.42, which includes US$0.07 in charges for certain items. Excluding those charges, EPS for the year would have been US$1.49, an increase of 17 percent over the prior year when the company also adjusted for certain items and reported EPS of US$1.21.

For the current quarter, which began July 1, Microsoft is expecting revenue in the range of US$12.4 billion to US$12.6 billion, with diluted EPS in the range of US$0.38 to US$0.40. For fiscal-year 2008, which will end June 30, 2008, revenue is expected to be in the range of US$56.8 billion to US$57.8 billion, and diluted EPS is expected to be in the range of US$1.69 to US$1.73.

However, Microsoft noted its guidance does not include the as-yet-undetermined impact of costs associated with the company's acquisition of aQuantive Inc., which is expected to close in the current quarter. Microsoft announced in May that it would purchase the digital advertising and marketing services agency.

During the conference call, CFO Chris Liddell said Microsoft expects the aQuantive deal to close in August after that company's shareholders vote on it. "Assuming a positive vote, we will update corporate guidance on the next earnings call in October," he said.

Liddell added that Microsoft does not expect significant impact in fiscal 2008 on earnings per share or operating income from the purchase except for some charges that may be incurred from its close.

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Elizabeth Montalbano

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