Microsoft posts higher revenue, earnings

Microsoft Corp. said revenue increased 10 percent in its second fiscal quarter to US$8.54 billion, a fraction less than analysts had been expecting. It also announced a two-for-one stock split and an annual dividend for its shareholders.

Net income came in at US$2.55 billion for the period ending Dec. 31, including a US$282 million charge for investment impairments and a US$126 million tax benefit relating to a favorable tax court ruling, the company said. That was up from net income of US$2.28 billion in the prior year's second quarter, Microsoft said in a statement Thursday.

The company characterized its results as "solid" in every business despite the challenging economic environment, but it also sounded a note of caution: Microsoft doesn't expect a significant upturn in global IT spending in the short term, Chief Financial Officer John Connors said in the statement.

Revenue from server software grew 12 percent from a year earlier, including 40 percent growth for Microsoft's SQL Server 2000 database, the company said. MSN also had a strong quarter, with online advertising up 40 percent, Microsoft said.

Operating income came in at US$3.26 billion including a charge of US$210 million, which is what Microsoft estimates it will cost to cover state antitrust and unfair competition lawsuits.

Diluted earnings per share increased to US$0.47, including a US$0.03 charge related to Microsoft's estimate of the cost of class action lawsuits, a US$0.05 charge for investment impairments, and a one-time benefit of US$0.02 for the tax court ruling noted above. That compared to diluted earnings per share of US$0.41 a year earlier, which included an US$0.08 charge related to estimated class action lawsuit costs, Microsoft said.

The revenue figure of US$8.54 billion compared with US$7.74 billion in the same quarter a year earlier, the company said. Analysts had been expecting revenue of US$8.59 billion, according to a poll by First Call/ Thomson Financial.

Microsoft also announced an annual dividend for shareholders and said its board has approved a two-for-one stock split. The dividend of US$0.16 per share (pre-split) is payable March 7 to shareholders of record on Feb. 21. As a result of the split, shareholders will receive an additional share for each share they hold on Jan. 27, the company said.

Declaring a dividend shows the board's confidence in Microsoft's long-term growth opportunities and financial strength, Connors said in the statement.

Ahead of the earnings release, Microsoft's (MSFT) shares on the Nasdaq closed at US$55.46, down US$0.81 on the day, or 1.44 percent.

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James Niccolai

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