That ol’ dinosaur Microsoft continues to rumble along, making tons of cash in the process. The company has just announced quarterly revenue of $15.06 billion, nicely beating estimates of $14.78 billion. Net income came to $4.37 billion, for an EPS of $.48, a penny ahead of estimates.
The outlook is a little muddier: Q4 revenue is forecast between $17.3-$17.8 billion, lower than the $17.96 billion that analysts were corecasting. The EPS range of $.51-$.53 is also behind the $.55 that analysts were looking for. Still, if you look at the big tech giants that have already reported this quarter, this kind of uber-cautious forecast has become the norm, so perhaps these numbers are to be adjusted.
The market satisfied with the results. After gaining 3.67% during the day, the stock is moving up another 1% after hours.
Some division results:
- Client revenue hit $4.2 billion, up slightly from $4.14 billion a year ago.
- Sever and Tools revenue grew 17% in the quarter to $3.4 billion. Op income was up 20% in the period.
- Microsoft Business Division revenue grew by a similar 20% to $4.9 billion. This unit, as well as Sever and Tools were the heroes of the quarter, as the company pronounced its enterprise activity as “healthy”.
- Online services revenue grew to $3.4 billion from $2.9 billion; op losses grew, however, to $480 million.
- Entertainment and Devices slipped slightly to $1.8 billion
There’s a lot for the company to cover on the call, which we’ll be covering live at 5:30 PM ET.
5:29: Hold music. Very triumphant sounding.
5:33: Call starting. We’re in a listen-only mode. Lots of warnings and disclaimers.
5:36: CFO Chris Liddell: All of our numbers hit high end of guidance, despite a challenging environment.
5:36: “Online services business grew revenue by 15% despite difficult ad environment”.
5:37: Spending deteriorated in the last few weeks of the quarter, bleeding into October.
5:38: “At the top end (of outlook range), we’re assuming a mild recession… at the bottom end, we’re assuming a deeper recession”. So, a recession either way (of course). But for perspective: Company still sees potential for growth in the high single to low double digits.
5:41: Forex changes added 3% to revenue growth.
5:42: OEM unit growth of 8% lagged hardware market by a couple of points, but it was due to inventory liquidations. Too early to tell whether the emerging netbooks segment is cannibalistic or additive.
5:46: 2.2 million XBoxs sold during the quarter. Outsold PSIII by 100k units in the quarter. Op margin and income growth in entertainment unit impressive, in light of XBox product cycle and the comparability against the release of Halo III last year.
5:49: Liddell: Credit tightening making it harder for customers to make purchases, including software. But, even with all of this, analysts expect software spending to grow in the high single digit range.
5:50: We expect our cost-reducing products will be particularly competitive (ex: virtualization software).
5:53: If macro climate worsens, company can ratchet down spending. Will be vigilant on headcount, reviewing hiring plans going forward.
5:57: Entertainment growth in the low-to-mid single digits in the coming quarter. Limited due to XBox price cuts.
5:59: Online services up 6-10%
6:01: Queston about netbooks and margins. Not much of an answer.
6:03: What’s being done to control costs? Capex will be $300 million less than previous forecasts. So $3.7 billion compared to $4 billion. “Don’t see any scenario where we’ll grow headcount by 15%” Will definitely be slower than what was previously expected. Really cutting back on all areas that might be considered “non-priority or low-priority”.
6:08: Economy: Clearly going to be pressure. More cautious on estimates for renewal growth.
6:10: Question: Why isn’t Microsoft moving aggressively to cut costs/expand margins? Still thinking about those things — might be something to consider for FY ’10, ’11 and ’12. That’s the timeframe for more serious choices about expense structure.
6:15: Cautious on outlook for investment income (makes sense). Note: Lots of nitty gritty questions about costs margins. Very little about online, big-picture strategy.
6:19 Currency question (again, lots of financial question). Liddell: About a third of business is US dollars in North America. Another third is US Dollars overseas, and another third is in foreign currency. So about a third is effected by fluctuations. But company is fully hedged, so don’t expect changes to be too significant.
6:25: Acquisitions? Won’t necessarily increase volume, but will continue to buy and the small and medium-sized range. The company has plenty of cash, and valuations may start to look tempting. The limitation is not related to capital, but about the peope and ability to integrate deals
6:26: Call ends. All in all, a very CFO-style call with lots of questions about margins, hedging, costs. etc. That last question, the one about acquisitions, seemed to be the only really related to strategy.
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