Microsoft profits will help soothe the Vista blues

 

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Posted on 23 Jan 2008 at 08:08

Windows Vista may be struggling to win hearts and minds, but it's still earning Microsoft a tidy profit.

The company is expected to report a sharp rise in quarterly profit this week, boosted by surging revenue as strong PC sales drive demand for Windows and Office.

"We're looking for Microsoft to continue to have positive results," claims said Andy Miedler, technology analyst at Edward Jones. "Last quarter was one of the best we've seen from it in a very long time and we think the company is certainly headed in the right direction."

Analysts, on average, forecast Microsoft to post a 66% rise in quarterly net profit to $4.35 billion, or 46 cents per share, on a 27% increase in revenue to $15.93 billion.

Those growth rates are exaggerated by the results from the same period last year, when Microsoft deferred more than $1 billion in net income due to delays in releasing Vista and Office 2007, which hit stores in early 2007.

Last week, research firm IDC said global PC sales rose 15.5% in the October-to-December period, while rival firm Gartner put worldwide computer sales growth at 13.1%.

"We believe that the strength of PC shipments this quarter portends well for Microsoft's (Windows) Client division and should give at least some boost to the results," says Bernstein Research analyst Charles Di Bona.

Windows, which sits on more than 90% of the world's PCs, was the main catalyst behind Microsoft exceeding 20% in revenue and profit growth in its first quarter. It was aided by strong PC sales, but the company also sold more of the premium versions of Windows and made progress in reducing piracy.

Office 2007 sales are also expected to rise in the strong PC market, while growing demand from corporate customers for products such as its SharePoint collaboration software should spur revenue growth at its business division.

Industry outlook

Investors will also watch Microsoft's results as an indication of the outlook for the technology industry as a whole. So far, results from tech bellwethers have painted a mixed picture.

Intel shocked investors with a disappointing forecast last week, while IBM provided some reassurance with a 2008 outlook that blew past Wall Street's expectations.

Microsoft has long argued its products are less sensitive to swings in technology spending because they account for a small, but essential, portion of overall technology spending by corporate customers.

Goldman Sachs added Microsoft to its Americas "Conviction Buy" list last week with analyst Sarah Friar writing that Microsoft is a good defensive stock in a tough economy.

She noted Microsoft should benefit from the release of Windows Server 2008 in February and the upcoming availability of Vista's Service Pack 1. Historically large organisations have waited for the release of SP1 to upgrade operating systems, although as we report in this month's PC Pro magazine, the performance boost from SP1 is marginal.

Author: Barry Collins and Reuters