Microsoft profits and sales go skyward

Licensing bonanza

Microsoft, the biggest software company on earth, once again bucked the trend in the IT sector by posting higher sales and earnings.

While most other global IT firms have struggled to grab more sales, Microsoft on Thursday said its sales were up nearly 11 percent year-on-year in its fiscal fourth quarter, to USD8.07 billion. CFO John Connors said that favourable exchange rates boosted revenue by USD255 million, but even without this gain, the company's revenues would have been up by 8 percent.

In its two most important product areas, Windows and Office, Microsoft recorded higher sales, thanks to its new licensing program. Windows sales were up 4 percent to USD2.43 billion in the quarter and Office revenues shot up 8 percent to USD2.35 billion during the period.

The company, which is also making pushes on the server, handheld and video game console fronts, said that fourth quarter net income was up 26 percent to USD1.92 billion, or USD0.19 per share, over the year earlier quarter. This figure would have hit USD0.23 per share, were it not for the USD533 million after-tax charge for a legal settlement with AOL Time Warner.

However, by that measure, the company actually missed the average estimate of analysts polled by Thomson First Call, who were calling for earnings of USD0.24 per share. It is also expected that investors will react poorly to Microsoft's absence of a dividend payout, despite the company's treasure trove of USD49.05 billion in cash and short-term investments, up USD10 billion from Q4 2002.

To put this cash balance into perspective, Microsoft's horde is just under half the size of Ireland's gross domestic product (GDP) for 2002 and is double Cuba's GDP for the same year.

Regarding the lack of a dividend, Connors told reporters and analysts that the company was holding back on certain decisions -- presumably items like dividend payouts -- until Microsoft resolved "a couple of still significant outstanding legal issues."

The software maker is facing an antitrust investigation in the European Union over server software and video playback software, and a private antitrust suit by Sun Microsystems that revolves around Java. Next week, the company will have its annual analyst meeting and it is expected that company will offer more details over what it plans for its enormous pile of cash.

In other parts of its results, the company detailed, for the first time, the financial impact of a new stock-based employee compensation plan, which it announced early July. For the year ending June 2004, Microsoft expects per-share earnings of USD0.85 to USD0.87, including a stock-based-compensation expense of USD3.9 billion, or USD0.24 a share, a figure that slightly beats expectations.

Also heartening to analysts is the company's forecast for sales in that year of USD34.2 billion to USD34.9 billion, with even the low end of that estimate USD300 million ahead of Thomson First Call's prediction.

Though the company's results seem to indicate that there is at least a small up-tick in tech spending, Connors said that in FY 2004, Microsoft is not anticipating a repeat of its massive growth in income, which in fiscal 2003 totalled USD10 billion on the back of a new licensing scheme. He also said that positive currency shifts will die off in FY2004 and shipments of the Windows XP operating system will weaken slightly.

© ENN

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