Microsoft is on a roll. The company easily exceeded revenue and EPS whispers and raised its guidance despite the threat of economic weakness. Office and Xbox revenue stronger than expected, other divisions in line.
- Revenue of $16.37 billion (vs. guidance range of $15.6-$16.1 billion and consensus of $16 billion)
- EPS of $0.50 (vs. guidance range of $0.44-$0.46, consensus of $0.46, and whisper of $0.48)
- Client revenue: $4.3 billion, +65%, in-line.
- Server/Tools revenue: $3.3 billion, slightly light
- Online Services revenue: $863 million, in line
- MBD revenue: $4.8 billion, $200mm ahead of expectations
- Entertainment revenue: $3.1 billion, $200mm ahead
CONFERENCE CALL NOTES (Jonathan Kennedy reporting live…)
5:28: T-minus 60 seconds… Baroque music playing
5:36: Call hasn’t started yet. Guess they’re running a little behind. Music is now in a more romantic mileux
5:38: Call begins, usual statement… details the scope of information to be divulged in the call
5:41: Highlights: “Results outstanding.” Revenue up 30%, 15% after adjustment for revenue deferral. 2nd consecutive quarter in the black for EDD (Gaming Division). Non US mature markets up 20%, emerging markets up 30%. “Global presence and products skews” largely responsible for success.
5:44: Demand for Windows Vista, Microsoft Office, strong X-box holiday sales, and decreasing X-box console costs led to significant Revenue growth and improved margins.
5:48: Revenue Highlights: Progress against software piracy contributed to strong “Client” revenue, “Investments paying off.”
5:52: EDD (Gaming Division) up 3%. Sales of X-box 360 hit 17.7 million consoles. Consumer spent 27% more than on Wii and twice as much as on PS3.
5:59: Microsoft has “assumed the following about the emerging macroeconomic environment.” Software industry to remain “healthy” and there will be no “spillover” to Microsoft’s business from weaker US economy. Business is extremely well positioned with diversification of products, channels, and currencies.
6:03: Raising guidance on FY08 EPS to $1.85 and $1.88, a 7 cent increase. Q3 EPS up to between $0.43 and $0.43. FY08 revenue guided to between $59.9bn and $60.5 and Q3 between $14.3bn and $14.6.
6:08: Q&A session begins. Goldman analyst asks about relatively small investment in online business… response: “Not at size or critical mass we’d like to see.” Follow up: Will growth in online continue to come inorganically? Answer: Mostly, “trend will continue.”
6:13: Sanford Bernstein analyst asks how specifically anti-piracy success has been achieved. Response: Better enforcement, improved technology… There have been 74 legal actions in 22 countries as governments have become more receptive to this kind of litigation. Anti-piracy campaign contributes to 3% of unit growth.
6:17: JP Morgan analyst asks whether strong MBD and Office growth was achieved through stronger unit sales, or higher ASPs. Response: it’s unit-driven.
6:20: Merrill Lynch analyst asks whether EDD division is due for a breakout in terms of lower margins. Response: strategy of selling consoles at a loss and raking in profits from software and peripherals has payed off. Console costs gradually decreasing.
6:24: Citi analyst asks whether there has been any change in consumer vs. enterprise demand. Response: not really. Follow up: How do you know macro picture won’t affect you? Response: “We’re a global company, we feel good about global GDP growth.”
6:28: Pacific Crest analyst asks how MSFT is investing its money. Response: Investment is broad, including but not limited to search and verticals.
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