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Investors' hopes rise as Microsoft's Q4 profit falls

Buyback Mountain

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Microsoft today erased investor worries over a 24 per cent drop in fourth quarter profits by announcing a massive stock buyback program and bullish results for its fiscal year.

Redmond's fourth quarter revenue came in at $11.80bn - a 16 per cent year-over-year increase. The revenue gains, however, were offset by the large profit dip. Microsoft's profit slipped to $2.83bn or 28 cents per share from the $3.7bn or 34 cents per share reported last year. Microsoft's operating expenses rose more than 10 per cent, as the company shelled out cash to catch up to Google in the search game and correct product delays.

As usual, Microsoft's bottom line was also hurt by legal settlements. This time around Microsoft chalked up $351m in legal charges as a result of a European Commission fine. Last year, Microsoft had to pay $756m in legal charges. But, when you're posting a $3bn profit, who cares?

Riding Buyback

Microsoft looks to please investors by putting its cash horde to good use. The company plans to buy back up to $40bn of stock via a $20bn tender offer and a $20bn five-year share repurchase plan.

Investors were tickled again when Microsoft's CFO Chris Liddell promised "strong, double-digit revenue growth" in this fiscal year. With Vista and a revamped Office on its side, the company expects full-year 2007 revenue to come in between $49.7bn and $50.7bn. In the nearer term, Microsoft forecasted a first quarter revenue total between $10.6bn and $10.8bn.

Some close software watchers wanted Microsoft to dish out specific revenue goals for Vista and Office. Liddell declined to provide such detail. Instead, he simply reiterated a November release of Vista to businesses, a January release to consumers and an Office release in the "beginning of next year."

Bleeding MSN

Looking back to the fourth quarter, we find Microsoft's client business humming along as usual. Client software revenue rose from $3bn in last year's fourth quarter to $3.4bn. This business also provided Microsoft with $2.5bn in income up from $2.2bn.

The server and tools unit performed even better with revenue rising to $3.2bn from $2.7bn. This unit posted income of $1.2bn - up from $814m.

Information worker revenue rose to $3.1bn from $2.9bn and offered up net income of $2.2bn - up from $2bn.

Microsoft's home and entertainment business enjoyed a large rise in revenue, reaching $1.1bn in this year's fourth quarter as compared to $587m last year. The unit's loss, however, swelled to $414m from $201m.

The MSN unit also posted a loss of $190m on revenue of $580m. That compares to a profit of $101m on revenue of $598m last year.

For the fiscal year ended June, 30, Microsoft reported an 11 per cent rise in revenue to $44.28bn.

Shares of Microsoft rose more than 5 per cent in after-hours trading, following the release of the financial report. ®

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