Microsoft profits pip estimates

Microsoft on Thursday reported first quarter profits just ahead of Wall Street estimates, though the company's sales and current quarter forecast fell short of expectations.

The company said it made profits of $3.14bn or 29 cents per share, on revenue of $9.74bn for the three months ending 30 September, including the profits hit caused by the RealNetworks settlement. The results compare with profits of $2.52bn, or 23 cents per share, on revenue of $9.19bn for the same quarter a year ago. The year-ago figures include a charge for Microsoft's settlement with Novell.

Excluding the cost of the RealNetworks pact, Microsoft would have had profits of 31 cents per share. Analysts were expecting the company to post profits of 30 cents per share, excluding the legal costs but including stock-based compensation charges, on revenue of $9.78bn, according to First Call. In July, Microsoft had forecast profits of between 29 and 31 cents per share on revenue of $9.7bn to $9.8bn.

Microsoft CEO Steve Ballmer sounded an upbeat note in an email to employees sent shortly after Microsoft's profits report.

He said in the email: "We're off to a great start this fiscal year as reflected in today's earnings announcement."

Ballmer pointed to a flurry of upcoming product launches as well as some recent examples of customers choosing Windows over Linux, including a decision by RadioShack to choose Microsoft for its point-of-sale systems.

He said: "Last quarter kicked off the first surge in a big wave of launches and news announcements."

Chief financial officer, Chris Liddell, said in a statement: "We are optimistic about the company's future." Liddell also announced that the company plans to speed up its stock buyback programme, with a goal of repurchasing the remaining $19bn by December 2006.

However, the company offered an outlook for the current quarter that was below what some analysts were forecasting. Microsoft said it expects revenue of $11.9bn to $12bn and per share profits of 32 cents or 33 cents.

Analysts had been expecting profits per-share of 35 cents per share, on revenue of $12.29bn, according to First Call.

For the just-ended quarter, Microsoft posted gains in sales and profits from its three main businesses - Windows client, server and tools, and Information Worker units. The Microsoft Business Solutions and Mobile units both posted narrower losses on increased sales, while the home and entertainment unit, which includes the Xbox, saw its sales slip and loss widen ahead of the Xbox 360 launch later this year. MSN posted slightly higher sales and operating profits.

Shares of Microsoft slipped in after-hours trading following the report, changing hands recently at $24.16, down more than two per cent from their $24.85 closing price.

For the full fiscal year, which stretches through June 30, Microsoft said it expects revenue in the range of $43.7bn to $44.5bn and per-share profits in the range of $1.26 to $1.30, including the two-cent charge for the RealNetworks settlement. That's roughly similar to the full-year outlook given by Microsoft three months ago.

Earlier on Thursday, Microsoft announced it was promoting Bob Muglia to head its Server and Tools unit, the latest in a series of moves that follow its September decision to reorganise the company into three units.

Ina Fried writes for CNET News.com