Microsoft gave Chairman Bill Gates an early gift for his 50th birthday — quarterly earnings of 29 cents a share, worth $295,691,311 to him.
Microsoft gave Chairman Bill Gates an early gift for his 50th birthday today — quarterly earnings of 29 cents a share, worth $295,691,311 to Gates, the company’s largest individual shareholder.
Gates is expected to celebrate with a party tonight at his Medina mansion, but other Microsoft investors are still waiting for the financial blowout. On Thursday, Microsoft reported earnings slightly better than Wall Street expected, but some analysts had hoped for more after personal-computer sales soared during the back-to-school season.
“I was disappointed, frankly,” said Brendan Barnicle at Pacific Crest Securities in Portland, who owns the stock personally. He wonders if Microsoft is losing PC market share to Apple.
Microsoft reported a 24 percent increase in profit and a 6 percent increase in sales in the quarter that ended Sept. 30, the first in Microsoft’s 2006 fiscal year.
Sales rose $9.74 billion from $9.19 billion a year ago, and profit was $3.14 billion, up from $2.53 billion.
Microsoft netted nearly 10 times more than rival Google did during the period, but the Redmond company is growing at a much slower rate. While Google’s sales have been nearly doubling, Microsoft expects 10 to 12 percent growth during its fiscal year, Chief Financial Officer Chris Liddell said.
“We had a good quarter and a good start to the year,” he told investors on a conference call.
Microsoft also announced it’s doubling the pace of a massive stock-buyback program intended to boost the value of its shares. It will spend $19 billion to do so during the next year.
The buyback shouldn’t crimp things too much, since the company had $40 billion in cash and short-term investments as of Sept. 30.
Executives characterized the move as a sign of Microsoft’s confidence in its business. But as analysts peppered Liddell with questions about the program, he acknowledged the company isn’t raising its earnings-per-share estimates for its fiscal year, even though the buyback means the number of shares on the market will be reduced.
Analysts are also concerned about the supply of Xbox 360 game consoles being launched next month. Liddell said Microsoft expects to sell 4.5 million to 5 million consoles in the fiscal year, but he didn’t say how many will be sold during this holiday season.
Numerous retailers have already pre-sold all of their initial allotment.
Goldman Sachs analyst Rick Sherlund lowered his sales forecast for the quarter ending Dec. 31 based on expectations Microsoft will deliver 1.5 million consoles this quarter instead of the 2 million to 2.5 million expected.
“I think the real issue for some on the Street will be the December quarter,” he said.
Microsoft estimates sales in that quarter — the second of the fiscal year — at $11.9 billion to $12 billion, operating income at $4.6 billion to $4.7 billion, and earnings per share at 32 or 33 cents.
For the fiscal year ending June 30, Microsoft is forecasting sales of $43.7 billion to $44.5 billion and earnings per share of $1.26 to $1.30, largely unchanged from its earlier forecast.
Analysts expected Microsoft would report earnings of 30 cents a share Thursday, according to Thomson Financial. Excluding the one-time cost of a legal settlement with RealNetworks, Microsoft’s profit was 31 cents a share.
Sales of Windows for PCs grew 7 percent during the quarter, but that lagged total PC sales of 15 to 17 percent. Liddell said retail sales slipped as more people bought new computers rather than packaged versions of Windows. Microsoft also sold more copies to high-volume PC vendors, who pay lower prices for the software.
Server and database sales grew 13 percent, including a 15 percent gain in SQL database sales, even though the company is releasing a new SQL version next month. Office and other productivity software grew 4 percent, while business software grew 16 percent.
The MSN Internet business grew 1 percent, driven by 20 percent growth in advertising sales, but its search-related ad business “has not been as strong as we’d like,” Liddell said.
The company gave no indication of any pending mergers, despite rumors of a deal with MSN rival America Online, and reports of a board meeting Thursday of AOL parent Time Warner.
Although it’s still a tiny business compared with Windows, Microsoft’s phone and embedded-software division saw sales rise 51 percent compared with a year earlier. Microsoft reported a 130 percent increase in licenses of its phone software and 57 percent growth in sales of embedded products, such as software for ATM machines.
Entertainment-product sales fell 17 percent, in part because of weak sales of the first-generation Xbox as the new model approaches. Microsoft’s board approved the faster stock buyback program Wednesday.
In July 2004, the company pledged to buy $30 billion worth by 2008. So far, it has spent $11 billion, and Thursday it said it will spend the remaining $19 billion by the end of December 2006.
The faster pace could suggest Microsoft expects the stock to rise later in 2006, when it releases a new version of Windows called Vista. So far this year, share price is down 7 percent. The stock closed Thursday at $24.85, down 26 cents. In afterhours trading, it slipped 40 cents to $24.45.
Sherlund said the buyback is good but isn’t all positive for the stock. Microsoft will have $19 billion less cash to invest, which will reduce earnings per share about 5 cents, he said.
Scott Di Valerio, the company’s vice president of finance and chief accounting officer, said Microsoft decided to speed up the buyback because it’s optimistic about new products being released over the next 18 months.
“You never know what the stock market’s going to do,” Di Valerio said.
Microsoft separately announced several executive reassignments, including that of Senior Vice President Bob Muglia, who will lead the server and tools group. He takes the place of Senior Vice President Eric Rudder, who is now advising Gates on technical strategy.
Brier Dudley: 206-515-5687 or firstname.lastname@example.org