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Microsoft Reaps Vista's Dividends
New System Boosts Profit,
But a Portion of Revenue
Was From Deferred Sources
By ROBERT A. GUTH
April 27, 2007; Page A3

Microsoft Corp.'s 65% jump in fiscal third-quarter earnings and an upbeat
forecast for the next year point to solid gains from the company's
long-delayed Windows Vista operating system.

But a hefty chunk of the third-quarter revenue was deferred from the quarter
ended in December, when the company issued coupons to personal-computer
buyers that could be redeemed for Windows Vista this calendar year.
Questions also remain about the impact of a recent accounting change, which
could allow Microsoft to recognize revenue from the new operating system
more quickly than in the past.

EARNINGS TOOLBOX


1
Earnings Cheat Sheets:2 Get a preview of what to expect in the quarterly
reports of other major companies, and the latest earnings news at
WSJ.com/Earnings3.The Redmond, Wash., software maker said earnings for the
quarter ended March 31 include a tax benefit of two cents a share and legal
charges of one cent a share. Revenue rose 32%.

Analysts, on average, had forecast earnings of 46 cents a share on revenue
of $13.9 billion, according to Thomson Financial.

"It's an excellent quarter," said Chris Liddell, Microsoft's chief financial
officer. "The financial results are very good."

PRODUCTS & PROFITS


4
See how the new5 Vista operating system affected Microsoft's results.
CONFERENCE CALL


6
"Growth this quarter was driven by sales in our Client and Microsoft
Business Division, following the general availability of Windows Vista, and
the 2007 Microsoft Office System." --Microsoft General Manager IR Colleen
Healy
Read the transcript7 of Microsoft's conference call, provided by Thomson
Street Events (www.streetevents.com8). Adobe Acrobat required9.Microsoft
projected earnings for the fiscal year ending in June 2008 between $1.68 and
$1.72 a share and revenue between $56.5 billion and $57.5 billion. Analysts
have been predicting earnings of $1.47 a share for the current year and
$1.69 for fiscal 2008, according to Thomson Financial. They put revenue at
$50.6 billion for the current year and $56.2 billion for the next.

Microsoft's shares rose 11 cents to $29.10 in Nasdaq Stock Market 4 p.m.
composite trading, and jumped to $30.50 in after-hours trading following the
announcement.

The numbers are indeed a good sign for Windows Vista, which is perhaps the
most important product Microsoft has sold in years. Rolled out broadly in
January, Vista is a foundation program for most PCs and succeeds its aging
Windows XP product. The release coincided with the launch of Office 2007,
the suite of PC programs such as Word used by businesses and consumers.

But analysts are struggling to get a handle on how much Vista's sales may be
bolstered by the change in how Microsoft accounts for sales of its PC
operating systems. Historically, Microsoft recognized up to 25% of the
revenue from Windows over the course of three-and-a-half years. The
accounting treatment reflected the costs of upgrades and other add-ons
Microsoft provides over the life of the system.


With Vista, Microsoft will record all the revenue in the quarter a copy is
sold. The accounting change translates to a "relatively faster revenue
recognition compared to Windows XP," Mr. Liddell said.

He estimated that the change will increase revenue by $220 million in the
current fiscal year, and $660 million in the next fiscal year.

In the third quarter, Vista sales and profits surged despite some analyst
estimates that PC sales slowed in the quarter. Sales in the client group,
which includes the Vista business, hit $5.3 billion, up 67% from the
year-earlier period, while operating income jumped 70% to $4.24 billion.

The results were also lifted by the Vista coupon program, which was designed
to prevent consumers from holding off purchases until the software was
ready. Microsoft said revenue deferred from the quarter that ended in
December was accrued to the third quarter, boosting revenue in the third
quarter by $1.67 billion and net income by $1.14 billion, or 12 cents a
share.

Microsoft's server and tools division continued as a key driver of
Microsoft's overall growth as operating income jumped 32% to $979 million on
sales of $2.7 billion, a 15% increase from the same quarter a year earlier.
But struggles continued in Microsoft's online group, which posted a loss of
$200 million, largely due to increased costs of data centers, personnel and
other investment into online services. Revenue in the quarter grew 11% to
$623 million.

The group is closely watched as the center of a tough battle against
fast-growing Google Inc., which may require changes at Microsoft in coming
months as the company tries to stem market-share losses. Microsoft's
advertising revenue in the quarter hit $456 million, 23% above the
year-earlier quarter, but slower than the overall market for online
advertising.


Mr. Liddell said that in light of Microsoft's steady investment in online
services, its growth in the online area is strong. "It's a long game and we
are going to have to invest ahead of a three to five year strategy," he
said.

In recent months, several top managers and executives have either left the
online division or announced plans to leave. Microsoft replaced one departed
vice president with a long-time Microsoft veteran, Satya Nadella, to oversee
the technology behind the company's search and advertising systems.

Mr. Liddell pointed to a stream of new products that could boost results
during in the year, including business software Longhorn Server, Office
Communications Server and CRM customer management software and the release
late this year of Microsoft's Halo 3 videogame.

Write to Robert A. Guth at rob.guth@wsj.com10

Those who really need this info already have it. So what's your point?

Did you read it?

Overall, it is pretty good but there are questions about how numbers have
been derived?

That's the point - numbers don't necessary mean anything.

"Retired" <retired@my.hom> wrote in message
news:%23PjQhbaiHHA.1240@TK2MSFTNGP04.phx.gbl...
> Those who really need this info already have it. So what's your point?
>
>

It is common knowledge that corporations will state their earnings in any
manner they choose, legal or otherwise. They will get a slap on the wrist
from the IRS or SEC. Try reporting your income in this manner and you will
spend a few years in a federal prison. However, as "Retired" has pointed out,
who cares?

"Retired" wrote:

> Those who really need this info already have it. So what's your point?
>
>
>

I agree probably no one cares.

My intension was very simple, actually, - to let people know a bit of more
behind numbers, if they want to.

Other than that, no point Well, it not worse than other threads

"CB" <CB@discussions.microsoft.com> wrote in message
news:14224347-3272-4CA0-88D3-159DC1A60699@microsoft.com...
> It is common knowledge that corporations will state their earnings in any
> manner they choose, legal or otherwise. They will get a slap on the wrist
> from the IRS or SEC. Try reporting your income in this manner and you will
> spend a few years in a federal prison. However, as "Retired" has pointed
> out,
> who cares?
>
> "Retired" wrote:
>
>> Those who really need this info already have it. So what's your point?
>>
>>
>>

On Sat, 28 Apr 2007 17:02:01 -0700, CB <CB@discussions.microsoft.com>
wrote:

>It is common knowledge that corporations will state their earnings in any
>manner they choose, legal or otherwise. They will get a slap on the wrist
>from the IRS or SEC. Try reporting your income in this manner and you will
>spend a few years in a federal prison. However, as "Retired" has pointed out,
>who cares?
>
>"Retired" wrote:
>
>> Those who really need this info already have it. So what's your point?
>>

Public corporations are audited anually and can face stiff fines, even
get de-listed on the major stock exchanges for a whole bunch of
reasons if financial statements are misstated. That isn't to stay
corporations can change the method they report earnnings, that's what
creative accountants are for. Ask Enron. <snicker>