Update: Microsoft beats forecasts with record revenue for Q2

IDG News Service - Microsoft Corp. beat Wall Street expectations for both revenue and earnings per share (EPS) for its fiscal 2008 second quarter, attributing its strong quarter to sales of core client products such as Windows Vista and Office 2007, as well as Exchange and SharePoint server software.

For the quarter ended Dec. 31, Microsoft reported revenue of $16.37 billion, an increase of 30% year over year and a number that solidly beat the $15.95 billion in revenue that Thomson Financial analysts had estimated.

Last year for the same period, Microsoft reported $12.54 billion in revenue.

Diluted EPS were 50 cents, an increase of 92% over the 27 cents in EPS reported last year, and 4 cents higher than Thomson Financial estimates of 46 cents a share. Operating income for the quarter was $6.48 billion, an increase of 92% from the $3.47 billion reported for the same period last year.

Microsoft's year-over-year percentage growth is higher than normal because of a deferral of $1.64 billion in revenue and operating income, as well as 11 cents of diluted earnings per share from the second to the third quarter of fiscal 2007. That deferred revenue contributed to the higher-than-average second-quarter percentage growth.

Without those deferrals, second-quarter growth rates for revenue, operating income and earnings per share would be 15%, 27% and 32%, respectively, for the quarter reported today.

Ahead of Microsoft's announcement, analysts had expected the company to report a strong quarter, despite economic uncertainty and fears that the U.S. economy is entering a recession.

Microsoft's client business, on sales of Windows Vista, was especially strong in the quarter, with $4.34 billion in revenue compared to $2.59 billion in revenue a year ago. According to Microsoft, its client business has grown 20% on average since Windows Vista became available nearly a year ago, and the company believes Vista began hitting its stride for adoption among customers and partners in the second quarter. According to Microsoft, it has sold more than 100 million licenses for Vista.

Looking ahead to the current quarter, which ends March 31, Microsoft said it expects revenue in the range of $14.3 billion to $14.6 billion; operating income in the range of $5.6 billion to $5.7 billion; and diluted earnings per share in the range of 43 cents to 45 cents.

For the full fiscal year ending June 30, Microsoft expects revenue in the range of $59.9 billion to $60.5 billion; operating income in the range of $24.2 billion to $24.4 billion; and diluted EPS in the range of $1.85 to $1.88.

On a conference call to discuss the results, Chief Financial Officer Chris Liddell noted that 60% of Microsoft's revenue in the second quarter came from outside the U.S., and said emerging markets are becoming increasingly important to the company's revenue. In the past several years, Microsoft has made significant investments in selling its technology in developing countries such as India, Brazil and China.