By Surojit Chatterjee: Subscribe to Surojit's RSS feed
July 23, 2010 2:23 AM EDT
Software giant Microsoft Corp. (NASDAQ.MSFT) beat Street and snubbed rival Apple Inc. (NASDAQ.AAPL) by reporting, Thursday, a record jump in revenue and net profits, saying they were driven by stronger sales of the new Windows 7 operating system (OS) and Office 2010. The announcement, however, failed to lift the company's stock as investors fretted over its loss making online search and advertising unit and the entertainment and devices unit.
Microsoft, which was overtaken by Apple Inc. as the world's biggest technology company, said, Thursday, its net profit for the April-June quarter or the fiscal fourth quarter jumped 48 percent to $4.52 billion or $0.51 per share from $3.05 billion or $0.34 per share last year.
The company said revenue in the June quarter also surged 22 percent to $16.04 billion from $13.1 billion in the year ago period.
Market analysts had forecast the company to report profit of $0.45 per share on revenue of $15.27 billion.
Microsoft said its earnings received a boost from strong sales of Windows 7 and Office 2010. The company said revenue from its Windows unit jumped 44 percent to $4.5 billion in the June quarter, accounting for more than a quarter of Microsoft's total revenue. The company said that it has sold over 175 million licenses of Windows 7 OS since it went on sale last year.
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Microsoft's other new product Office 2010 - the latest version of its flagship Office product - also fared well. It helped the company's business software unit revenue climb 15 percent year-on-year to $5.3 billion.
The company's server software unit's revenue also grew 14 percent to $4 billion.
Earlier this week, Apple said its net profit in the latest fiscal quarter jumped 78 percent to $3.25 billion or $3.51 per share while revenue surged 61 percent to $15.7 billion, its highest ever.
Apple 's stellar performance had put pressure on Microsoft to report equally impressive results and the company not only managed to beat Street estimates but also snubbed Apple to show who's the boss when it comes to earnings.
Microsoft's shares, however, slipped 0.58 percent to $25.69 during after-hours trade on the Nasdaq, following the financial announcement. Why?
Market analysts said it's because investors are worrying about its loss making online search and advertising unit and entertainment and devices unit.
Though revenues in both the units increased, both reported wider operating losses.
While the online unit lost $696 million despite its revenue rising 13 percent to $565 million, the entertainment unit lost $172 million despite reporting a 27 percent jump in revenue to $1.6 billion.
Microsoft continues to struggle against market leader Google Inc. and its new Bing search engine is still to make any impact. According to industry tracker ComScore Inc., Bing gained a point of US market share during the quarter, rising to 12.7 percent. Though Bing managed to close the gap with Yahoo! (18.9 percent), it was still a far cry from Google (62.6 percent).
However, Microsoft CFO Peter Klein said the company continues to invest heavily on its Bing search engine. The company is on track, Klein said, to power Yahoo! Inc.'s search business - result of a strategic alliance signed earlier this year - and is expected to help add to future earnings of both the companies.
Microsoft's entertainment and devices unit makes Xbox 360 video game system, computer games, Zune music players, mobile phone systems and other products. Though Microsoft managed to sell 1.5 million Xboxes during the recent quarter, the company said it had to write down a one-time charge relating to the teen-focused Kin smartphone - a flashy device loaded with social networking software - that was pulled off shelves just two months after its launch.
About $251 million in expenses resulted from the cancellation of the Kin phone and increased royalty costs on the Xbox Live video game network. Company sources said fewer than 10,000 Kins were sold and it became a major embarrassment to the company.
Perhaps the failure of Microsoft's entertainment and devices unit to turn to black in recent quarters had forced division president Robbie Bach and division chief experience officer and chief technology officer J. Allard to call it quits in May.
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