Microsoft Hits a Home Run but Misses Mark

By Michelle Savage

July 22, 2008 —  Microsoft announced a record quarter and fiscal year when it reported its fiscal 2008 revenues and earnings last week, but investors were not smiling.

Microsoft announced revenue of US$15.84 billion for its fiscal fourth quarter, which ended June 30, an 18 percent increase over the same period one year ago. However, when it came to making a profit, the software giant reported only a net profit of $4.3 billion, or 46 cents a share, just missing Wall Street’s forecast of 47 cents a share.

Microsoft’s annual revenue reached a record $60.42 billion in fiscal year 2008, an 18 percent increase over fiscal year 2007. However, the company posted income of $22.49 billion, or $1.87 per share, barely meeting the company’s earlier profit forecast of $1.87 to $1.90 per share.

Microsoft also lowered its Q1 2009 estimates and 2009 fiscal year estimates. It forecasted next quarter’s earnings per share to range from 47 cents to 48 cents based on revenue between $14.7 billion to $14.9 billion, and forecasted fiscal year 2009 earnings to be between $2.12 and $2.18 per share on revenue of $67.3 billion to $68.1 billion. But Reuters Estimates shows that Wall Street has bigger expectations; it forecasted 49 cents per share based on $15.06 billion in revenue for the next quarter, and earnings of between $2.13 and 2.19 per share based on revenue between $66.9 and $68 billion.

Microsoft’s stock suffered when the company missed the profit marks and lowered its estimates. Shares tumbled about six percent to $25.86 as soon as the earnings were announced. Today, shares remain low at $25.59.

According to Microsoft, this fiscal year was boosted by several launches, including Windows Server 2008, SQL Server 2008 and Visual Studio 2008, as well as sales of Windows Vista, the 2007 Microsoft Office system, server software, and Xbox 360 consoles and games.

However, growth rates were, in part, offset by a $1.1 billion charge in the fourth quarter of fiscal year 2007 used to expand Microsoft’s Xbox 360 warranty coverage and major losses in the online services business. Liddell told investors that the online business probably won’t see positive results until fiscal year 2010.



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