Microsoft coffers swell on Vista, Office sales

In the first quarter to include consumer sales of Windows Vista and Office 2007, Microsoft reported profits that topped Wall Street estimates.

The software behemoth said it made $4.93bn profit, or 50 cents per share, on revenue of $14.40bn for the three months ended 31 March. That compares with net income of $2.98bn, or 29 cents per share, on revenue of $10.9bn for the same quarter a year earlier.

The quarter's profits were affected by a 2 cent per share tax benefit and legal charges that dented per-share profits by a penny. Excluding those items, the company would have posted earnings of 49 cents per share, ahead of the 46 cents analysts were projecting, according to First Call.

In January, Microsoft said to expect revenue between $13.7bn and $14bn and per-share profits of 46 cents or 47 cents.

Microsoft's revenue and profits included some money that was deferred from earlier quarters as part of a Vista upgrade programme. The deferred money accounted for $1.67bn in revenue and accounted for 12 cents per share in profits.

Chief operating officer Kevin Turner said in a statement: "This quarter marked the consumer launches of Windows Vista and the 2007 Microsoft Office system, and we are delighted with the positive customer response these products have received."

For the current quarter, Microsoft said it expects revenue to be in the range of $13.1bn to $13.4bn, with per-share profits expected to be from 37 cents to 39 cents. Wall Street was projecting profits of 40 cents per share on revenue of $13.31bn, according to First Call.

Microsoft shifted some costs from the past quarter to this quarter, accounting in part for the fact the company's outlook is below what some analysts were expecting, Colleen Healy, Microsoft's general manager of investor relations, said in an interview.

The company also offered its first estimate for the new fiscal year, which begins in July. Microsoft said it expects revenue in the range of $56.5bn to $57.5bn, with per-share profits in the range of $1.68 to $1.72. That's roughly in line with what many analysts had been projecting.

Microsoft said its online services business, which includes its MSN and Windows Live efforts, saw revenue grow 11 per cent, with advertising revenue up 23 per cent from a year earlier. Healy said Microsoft also saw, for the first time, its homegrown AdCenter ad-serving engine produce higher revenue per search than Microsoft had been getting when it used Yahoo!'s Overture service. Last quarter, Microsoft cut its outlook for the online business and said it was "not happy" with its search business results.

PC sales for the industry grew about one percentage point more than Microsoft had been projecting, Healy said, with Office and Vista being well-received. "The reception they've received thus far really puts us off to a nice start," she said.

Microsoft said that seven in 10 PCs shipped with a premium version of Windows in the quarter, as compared with about five in 10 under Windows XP. However, much of the shift was to Vista Home Premium, which carries far less extra profit, compared with Home Basic, than do Vista's business versions. All in all, the shift to higher-end versions of Windows accounted for one percentage point of the growth Microsoft saw in its sales of Windows for new PCs, Healy said on a conference call with analysts.

Microsoft told analysts it expects Vista to account for 85 per cent of sales in fiscal 2008, with XP still amounting to 15 per cent of sales. Healy said: "We're optimistic but we don't want to get ahead of ourselves."

Ina Fried writes for CNET News.com