<<it is simply amazing that not even one lone 'analyst' picked up on this..>>
Even more amazing, considering there was a major WSJ story trumpeting the fact that the earnings "surprise" was due to investment gains:
interactive.wsj.com^MSFT
Microsoft's Net, Revenue Beat Forecasts,
Helped by Gains on Two Big Investments
By REBECCA BUCKMAN
Staff Reporter of THE WALL STREET JOURNAL
Microsoft Corp., finally seeing an uptick in sales of its make-or-break Windows 2000 software,
posted higher-than-expected revenue and earnings for its fiscal first quarter.
Much of the unanticipated profit growth came from gains on two big investments, however, and the
company's operating profit actually declined slightly from last year, though it was up from its fourth
quarter.
Microsoft's earnings "came in a little bit better than we thought, and given
all the pre-announcements [about soft earnings] on the PC side, I think
that's pretty positive," said David Readerman, an analyst with Thomas
Weisel Partners in San Francisco. In recent weeks, the market for
technology stocks has been rocked by predictions of
lower-than-expected revenue from major tech companies including Intel
Corp. and Dell Computer Corp.
Microsoft's bottom line also got an unexpected boost because the
company drew on some "deferred revenue" from long-term contracts,
noted Rick Sherlund, an analyst with Goldman Sachs & Co. That,
combined with the investment gains, means Microsoft's results were
more or less in line with estimates, he said.
Still, "this is the first quarter in three or four quarters where we haven't
had to cut our Microsoft estimates," Mr. Sherlund pointed out. "I think it
looks to me that the worst is behind us for Microsoft."
But the Redmond, Wash. software giant isn't out of the woods yet. While Microsoft gleaned more
revenue than expected from its core Windows operating-system business in the quarter ended Sept.
30, it actually pulled in less revenue than last year from its workhorse Office software suite. And
overall revenue growth came in at just under 8%, compared with the blowout 60% revenue growth
reported Thursday by archrival Sun Microsystems Inc.
Microsoft posted net income of $2.21 billion, or 40 cents a diluted share, just about on par with its
earnings of $2.19 billion, or 40 cents a share, in the year-earlier quarter. Revenue was $5.8 billion,
compared with $5.38 billion in last year's first quarter.
Beating Estimates
But that net income figure includes a one-time, $375 million charge to comply with new accounting
rules governing derivatives. Without the charge, Microsoft earned $2.58 billion, or 46 cents a share.
That beat the consensus analysts' estimate of 41 cents a share, as reported by First Call/Thomson
Financial.
"We're real pleased. We feel like we had a real solid quarter," despite some weakness in Europe,
said Chief Financial Officer John Connors.
Microsoft released its results after the close of regular trading. In 4 p.m. trading on the Nasdaq Stock
Market Wednesday, shares closed at $51.75, up $1.31, and moved up to $55.94 in after-hours
trading.
The results, particularly the revenue growth, sounded some positive notes for Microsoft shares, which
have swooned recently amid industrywide fears about lackluster demand for personal computers --
for which Microsoft provides software -- and the company's continuing antitrust battle with the
government. "You're definitely going to get a relief rally in the stock," predicted Bill Epifanio, who
follows the company for J.P. Morgan & Co.
Investment Gains
Nonetheless, about five cents of the company's impressive 46 cents in profit came from the $600
million in net gains Microsoft realized on its vast investment portfolio, Mr. Connors said. Three cents
of that gain came from two major sales which closed in the just-ended quarter, ahead of schedule: the
dispositions of Microsoft's stake in the TransPoint LLC online-payments venture and its position in
Titus Communications Co.
And while some analysts had worried earlier this week that Microsoft would lower its revenue
forecast for its fiscal second quarter, which ends in December, Mr. Connors said Microsoft was
sitting tight. He even suggested analysts could boost their earnings estimates for fiscal year 2001 by a
couple of pennies, based on the strong September results.
Microsoft also isn't making any changes in its all-important projections for PC demand, Mr. Connors
said.
"Our expectations were lower than some estimates in the industry, and we have not changed them
further," he explained on a conference call with analysts and reporters. "As a result, we expect
desktop-software results will continue to improve as business PC demand accelerates through the
balance of the fiscal year."
Analysts are still concerned about how quickly Microsoft can ramp up its corporate-software
business. Though Microsoft officials crowed about the results of the company's Windows business
for the quarter, it is still unclear exactly how much came from higher-end Windows 2000 products
and how much from consumer-focused operating systems, such as the just-released Windows Me.
The company said revenue for enterprise, or corporate, software and services was $1.04 billion, up
from about $949 million in last year's fiscal first quarter.
Revenue from corporate products is due to pick up, after showing slow progress through the last
fiscal year, said Drew Brosseau, an analyst with SG Cowen. New Windows 2000 server products,
including SQL Server and the "data center" version of Windows 2000, were introduced during the
just-ended quarter.
Still, "I would say incrementally, the Windows 2000 story is starting to work," said Melissa Eisenstat,
an analyst with CIBC World Markets.
Desktop software, including Windows and Office products, came in at a much larger $4.02 billion,
up from $3.88 billion last year. But that included revenue from desktop applications, mainly Office,
which declined about 3% from last year to $2.14 billion from $2.21 billion.
Fears about the potential growth of old franchises like Office are one reason Microsoft's stock has
dropped so far this year. "They're not priced as a market leader anymore," Mr. Brosseau said.
"They're priced as a large company with a modest growth rate. That's a reasonable description of
their position at the moment."
In retrospect, it's not amazing. It's options expiration week, at its finest.... |
