Microsoft earnings rises 60 per cent in Q2 as computer industry bounces back

The Associated Press ~ staff The News
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SEATTLE - Microsoft Corp. said Thursday its earnings in the most recent quarter jumped 60 per cent, as a rebound in the personal computer industry drove sales of the company's latest Windows operating system.
But results in Microsoft's other divisions show that while consumers have resumed spending on new PCs, big corporations have not.
Microsoft said the division that makes Office software and other business programs, the company's other cash cow, saw revenue slip three per cent. Revenue from its typically fast-growing server software group edged up just two per cent. In both cases, Microsoft blamed the ongoing lull in corporate spending on technology.
The software maker's results match PC analyst reports attributing growth over the holidays to consumer interest in inexpensive laptops and their smaller, less powerful cousin, the netbook. Intel Corp., the top maker of microprocessors for computers, also reported strong sales in consumer segments but ongoing weakness in business PCs.
Microsoft said it expects corporations to start spending on technology this year, but that the increase from the current lows would be gradual.
For its second quarter, which ended Dec. 31, Microsoft said its net income rose to US$6.7 billion, or 74 cents per share, from $4.17 billion, or 47 cents per share, in the same period last year.
That exceeded the 59 cents per share Wall Street was expecting, according to a Thomson Reuters poll.
Revenue increased 14 per cent to $19 billion in the year-ago quarter, ahead of analysts' average forecast of $17.8 billion.
In the Windows division, revenue leapt 70 per cent and net income nearly doubled to $5.4 billion. The latest version of Windows, called Windows 7, was released in October, but in the months before the launch, Microsoft gave new PC buyers the right to upgrade to Windows 7 later. The second-quarter results included $1.7 billion in deferred revenue for Windows sales made during earlier quarters but not recorded until the launch.
Beyond the boost from deferred revenue, the Windows division did far better than analysts had predicted. One big reason is that more people than expected went out to stores to buy boxed copies of the new operating system to install on older computers.
"I would say it was a great quarter," said Sid Parakh, an analyst for McAdams Wright Ragen.
Microsoft is expected to release a new version of Office this year, which helps explain the lack of growth in the company's business software division. The company also faces increasing competition from Google Inc.'s Web-based word processing, spreadsheet and other software.
Microsoft continues to pour money into its web search and advertising operations as it attempts to close the gap with market leader Google. The software maker said that division widened its loss in the quarter, hurt by declines in display advertising revenue.
The software maker didn't give revenue or earnings guidance for the current quarter or the full fiscal year.
Even though Redmond-based Microsoft beat Wall Street's forecast, shares edged up just four cents to $29.20 in extended trading Thursday after the release of results. Earlier, the stock closed down 51 cents, or 1.7 per cent, at $29.16.

Organizations: Microsoft Corp., Windows division, Windows 7 Intel Corp. Google Inc. Thomson Reuters

Geographic location: SEATTLE

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