Windows 7 sales boost Microsoft 4Q net income

Jul 22, 2010 By JESSICA MINTZ , AP Technology Writer
This file photo made March 10, 2010, show Microsoft Window7 products for sale in Mountain View, Calif. Microsoft Corp. said Thursday, July 22, 2010, that its net income surged 48 percent in the most recent quarter, the latest sign that businesses are again spending money on technology. (AP Photo/Paul Sakuma, File)

(AP) -- Microsoft Corp. said Thursday that its net income surged in the most recent quarter, the latest sign that businesses are again spending on technology.

Strong sales of Windows, particularly to Microsoft's corporate customers, and of Office 2010 helped boost results in the fiscal fourth quarter. Microsoft said it has sold more than 175 million licenses of the newest version, Windows 7, since it went on sale last year.

Big businesses stopped replacing aging computers, servers and software during the worst of the recession. Last quarter, the software maker said it saw signs that its corporate customers were starting to spend again.

This quarter's results, which follow a strong report from chipmaker Intel Corp., show the trend has accelerated. Microsoft Chief Financial Officer Peter Klein said billings for its multiyear agreements with big companies increased in the quarter.

"I think it was a good quarter," said McAdams Wright Ragen analyst Sid Parakh in an interview. "I would say a great quarter."

Microsoft's results are closely tied to the personal computer market. Worldwide PC shipments rose about 22 percent in the quarter, according to the research group IDC.

For the April-June period, Microsoft's net income jumped 48 percent to $4.52 billion, or 51 cents per share, from $3.05 billion, or 34 cents per share, last year.

Revenue rose 22 percent to $16.04 billion, from $13.1 billion in the same period a year ago.

The results were stronger than Wall Street had expected. Analysts surveyed by Thomson Reuters had forecast net income of 45 cents per share on $15.3 billion in revenue.

Revenue for the group that makes Windows increased 44 percent to $4.5 billion, more than a quarter of Microsoft's total. For its business software segment, Microsoft said sales of Office 2010 were primarily responsible for pushing that segment's revenue up 15 percent to $5.3 billion.

Microsoft's server software group reported a 14 percent increase in revenue to $4 billion.

Revenue also increased in the company's online search and advertising group and in its entertainment and devices segment, which includes the Xbox 360 video game system, computer games, mobile phone systems and other products.

But both those groups reported wider operating losses. Microsoft continued to invest more than it made from its Bing search engine as it worked to get a search advertising partnership with Yahoo Inc. up and running. Klein said Microsoft is on track to run Yahoo's search business in the U.S. by the holidays.

The company also wrote down a charge related to the Kin phone, a device for younger smart phone users that Microsoft pulled off the market just two months after it launched.

The company's massive cash pile was about $3 billion lighter at the end of June than it was three months earlier, at $36.8 billion. The company said it spent $3.8 billion to repurchase stock in the quarter.

Klein said Microsoft's currency-hedging program protected it from the effects of a stronger U.S. dollar. Otherwise, sales made in foreign currencies would have translated into fewer U.S. dollars.

The software maker ended the quarter with about 400 more employees than in the prior quarter, for a total of 88,596. Just over half of the new jobs were added in the U.S.

For the full year, Microsoft said net income rose 29 percent to $18.8 billion, or $2.10 per share, from $14.6 billion, or $1.62 per share, a year earlier.

Revenue increased 7 percent to $62.5 billion, from $58.4 billion in the prior year.

Shares of the company fell 11 cents to $25.73 in extended trading after the release of results. Earlier, the stock had increased 72 cents, or 2.9 percent, to close at $25.84.

Parakh, the analyst, said investors may be worried about the broader economy.

"Some might be thinking, 'Hey, this quarter was great, but I don't know how long this is sustainable,'" he said.

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