Microsoft posts slight Q1 growth, lowers Q2 outlook

Multiyear annuity sales lifted Microsoft's revenue 9 percent for the first quarter of fiscal 2009, but the company lowered guidance for its second quarter.

Multiyear annuity sales lifted Microsoft's revenue 9 percent for the first quarter of fiscal 2009, but the company lowered guidance for its second quarter as crisis grips the global economy, news that came as no surprise to financial analysts.

Microsoft reported revenue of US$15.06 billion for the first quarter, which ended Sept. 30, with earnings per share of US$0.48. Both numbers beat consensus estimates from Thomson Reuters analysts, who expected the company to earn US$14.78 billion for the quarter on EPS of US$0.47.

Operating income for the quarter was US$6 billion, while net income was US$4.37 billion, Microsoft reported.

While the quarter overall was strong, Microsoft lowered its revenue and EPS expectations for the second quarter, as financial analysts expected it would before results were announced Thursday.

New guidance for the second quarter, which ends Dec. 31, is in the range of US$17.3 billion to US$17.8 billion for revenue and US$0.51 to US$0.53 for diluted EPS. Previously, the company said it expected about US$18 billion in revenue with EPS of US$0.55 for the second quarter.

Microsoft also lowered guidance for its 2009 fiscal year. Revenue is now expected to be in the range of US$64.9 billion to US$66.4 billion, with EPS in the range of US$2 to US$2.10. Previously, Microsoft had expected revenue in the range of US$66.59 billion to US$67.1 billion, and EPS to be between US$2.11 and US$2.18.

The market seemed to take Microsoft's forecast changes well; the company's stock price was up in after-hours trading. Microsoft (MSFT) stock closed at US$22.32 but was trading at US$22.54 after the U.S. markets closed. Analysts had expected Microsoft to lower its 2009 outlook even more than the company did, they said.

Microsoft is expected to offer more detail on these changes in a conference call Thursday, but analysts said the economic crisis in the U.S. that is spreading around the globe is likely the reason for Microsoft lowering its guidance.

Prior to Microsoft's statement about its financials Thursday, analysts expressed concern that IT spending in the U.S. would slow due to the crisis and that PC unit growth, a core driver of Microsoft's Windows client business, would not meet current market assumptions of 10.3 percent growth for the year.

For the first quarter, however, the client business was a key reason for Microsoft's positive results, the company said. Recurring revenue from a combination of the client segment as well as the Microsoft Business and Server and Tools divisions grew 20 percent during the quarter and contributed heavily to overall revenue growth, Microsoft said in a statement.

Microsoft's Business Division, which includes the popular Office productivity suite, had the most revenue of any group for the first quarter. Microsoft reported US$4.95 billion in revenue from that group. The client business was close behind, with US$4.22 billion in revenue, followed by Server and Tools, with US$3.41 billion in revenue.

Microsoft's Online Services Business continued to struggle in the quarter, with the lowest revenue of all segments at US$770 million. However, it grew modestly from the year-ago quarter, in which OSB reported US$671 million in revenue.

Microsoft had hoped earlier in the year to spur growth in OSB with a purchase of Yahoo, but the deal fell through in May. However, rumors that the two could still come together have recently resurfaced, fueled by public comments Microsoft CEO Steve Ballmer made earlier this week that a deal between Microsoft and Yahoo would still make sense economically.

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Elizabeth Montalbano

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