Microsoft misses targets, shares drop
Company blames lower software sales to businesses
By Mike Tarsala, CBS.MarketWatch.com
Last Update: 6:31 PM ET April 18, 2002
REDMOND, Wash. (CBS.MW) -- Shares of Microsoft sank as much as 7 percent in after-hours trading Thursday after the world's largest software company missed profit and sales targets for its third quarter and lowered its expectations for this quarter, this fiscal year, and fiscal 2003.
Microsoft blamed lower software sales to its large, corporate customers for the shortfall, which caused its shares (MSFT: news, chart) to drop as much as $3.47 on Island in after-hours trading to $52.90. The shares were last trading at about $53.03.
The Redmond, Washington-based company said net income in its fiscal-third quarter, ended March 31, rose to $2.738 billion, or 49 cents a share, up 12 percent from $2.451 billion or 44 cents in the year-ago period.
Analysts had expected the company to earn 51 cents a share, on average, according to a survey of analysts conducted by Thomson Financial/First Call.
Earnings included an $847 million after-tax gain on the sale of Expedia, which added 15 cents a share, and an $806 million after-tax charge related to investment impairments, which subtracted 14 cents a share.
"The demand for IT infrastructure in corporations is likely to be muted in the short term, but we think that it could be better by the first half of 2003," said John Connors, Microsoft's chief financial officer, in a conference call. "If IT demand and PC shipments improve beyond our expectations, they will lift all boats in our industry."
Sales rose 13 percent to $7.25 billion, driven by stronger overseas sales of the company's Xbox video game system and licensing of its flagship Windows XP operating software. But the result missed the mark. Analysts had anticipated a sales gain of 14 percent to $7.34 billion.
Microsoft says it expects to earn 41 or 42 cents a share in the June quarter, on sales in a range of $7 billion to $7.1 billion. Before the earnings report, analysts had been forecasting earnings of 44 cents a share, on sales of $7.65 billion, according to Thomson Financial/First Call.
The company took a much dimmer view for the rest of the year. Microsoft dropped its per-share earnings target for the rest of fiscal 2002 to a range of $1.54 a share to $1.55 a share, based on sales of $28.1 billion to $28.2 billion. The full-year earnings are expected to be as much as 14 percent lower than last year's. Analysts had been expecting earnings of $1.87 a share, based on sales of $28.9 billion, on average.
Microsoft's revenue from the Americas and South Pacific was $2.76 billion, up 16 percent, with sales in the United Sates leading the way, the company said.
Sales the Europe/Middle East/Africa region rose 5 percent to $1.29 billion, aided by the launch of the Xbox in the region. Revenue in Asia, however, fell 2 percent to $818 million, due mainly to declining PC shipments that affected sales of the XP operating system.
Revenue from Microsoft's desktop applications in the March quarter, which include sales of Microsoft Office and Windows 2000 to consumers, hit $2.44 billion, essentially flat with the $2.41 billion in sales a year ago.
The company increased sales 11 percent to $2.29 billion in its desktop platforms division, however, which focuses on Windows XP Professional and other higher-end operating systems.
Microsoft's sales of enterprise software and services, which include its SQL Server database software and business-related applications, rose 2 percent to $1.28 billion. T
The company said sales of .NET-related business software suffered, due to poor economic conditions and weak customer spending. Revenue from development software and training and certification applications dipped 12 percent.
One bright spot was Microsoft's consumer software, services and devices division, which includes Xbox and MSN Internet-based services. Sales in the division more than doubled to $1.07 billion, from $460 million. Microsoft wasn't selling the Xbox in the year-ago period, however.
The company's cash flow from operations was $4.12 billion, up slightly from $4.01 billion in the year-ago period. Microsoft's cash and short-term investments totaled $38.69 billion at the end of the quarter.
Mike Tarsala is a San Francisco-based reporter for CBS.MarketWatch.com |
