Microsoft sees strong Office and flat Windows in quarter

 

Microsoft met analyst expectations for fiscal first-quarter earnings today, generating solid sales from its Office and server software divisions while revenue from its flagship Windows operating system barely budged up from the year-ago period.

“We saw customer demand across the breadth of our products, resulting in record first-quarter revenue and another quarter of solid (earnings per share) growth,” Peter Klein, chief financial officer at Microsoft, said in a statement. “Our product portfolio is performing well, and we’ve got an impressive pipeline of products and services that positions us well for future growth.”


For the fiscal first quarter that ended September 30, Microsoft posted operating income of $7.2 billion, a 1 percent gain from the year-ago period, on sales of $17.37 billion, a 7 percent jump. Earnings per share climbed 10 percent to 68 cents. Analysts had been expecting Microsoft to post earnings of 68 cents a share on sales of $17.3 billion, according to Thomson Financial.
The biggest challenge for Microsoft remains sluggish PC sales. The company estimates that the PC market grew between 1 percent and 3 percent in the quarter. With slowing demand for computers comes slowing growth for Windows. For the quarter, sales in the Windows and Windows Live Division climbed 2 percent to $4.9 billion.
In its quarterly report filed with the Securities and Exchange Commission, Microsoft noted that PC sales to businesses climbed 5 percent, while sales to consumers were flat. The biggest drag: Netbook sales.

“Excluding a decline in sales of netbooks, we estimate that sales of PCs to consumers grew approximately 8%,” the company wrote in its quarterly filing.

Sales from Microsoft Windows and Windows Live division for the last five quarters.

Operating income for the group fell 1 percent to $3.3 billion. That drop came as the company bumped up advertising and marketing expenses 8 percent. Research and development costs for the group increased $37 million or 9 percent as Microsoft ramped up development costs for creating Windows 8, the next version of the operating system that’s expected to debut late next year.
Microsoft’s other big franchise, the Office productivity suite, continued its strong run. The company saw solid gains in Office sales even though the product debuted in June 2010, creating a tough comparison for the most recent quarter. Even so, sales in the Microsoft Business Division grew 8 percent to $5.6 billion. What’s more, the company’s Dynamics business, which makes customer-relationship management software, grew 17 percent in the quarter. The Office group’s operating income grew 6 percent to $3.7 billion