Microsoft beats Street, reports strongest Q1 in eight years

Windows Vista Premium seems to be the top choice of OS buyers

Strong sales of new and old products alike led Microsoft Corp. to its fastest first-quarter growth in eight years, with the company reporting growth in all five business segments and both revenue and earnings per share (EPS) that beat analyst expectations.

Revenue for the fiscal quarter ended Sept. 30 was up 27% at $13.76 billion compared to $10.81 billion a year ago, Microsoft announced late today. Consensus estimates from Thomson First Call analysts were for the company to generate revenue of $12.57 billion. Microsoft's EPS for the quarter was 45 cents, which also soundly beat Thomson First Call consensus estimate of 39 cents. Net income for the quarter was $4.29 billion, a 23% increase over the $3.48 billion reported a year ago.

At $5.92 billion, operating income for the quarter also had double-digit percentage growth: an increase of more than 25% over operating income reported for the same period last year of $4.47 billion.

Microsoft's first quarter was buoyed by the highly anticipated launch of the Xbox 360 game Halo 3 on Sept. 25, just days before the quarter's close. In its first 24 hours on sale, the game brought in $170 million in sales; it became the fastest-selling video game in history after being in the market for just a week and a half, according to the company.

Strong performances from Microsoft's client, business, sever and tools and online divisions also contributed to revenue growth in the quarter. In particular, Microsoft said sales of its Windows Vista OS experienced double-digit growth through multiyear business contracts, and demand for Microsoft Office, Windows Server and SQL Server was also high.

"Customer demand for Windows Vista this quarter continued to build with double-digit growth in multiyear agreements by businesses and with the vast majority of consumers purchasing premium editions," Kevin Johnson, president of the platform and services division at Microsoft said in a statement.

Looking ahead, Microsoft said it expects to report revenue in the range of $15.6 billion to $16.1 billion for its second quarter, which ends Dec. 31. Operating income is expected to be in the range of $5.9 billion to $6.1 billion, while diluted EPS is expected to be between 44 cents and 46 cents for the second quarter, the company said.

For its fiscal year 2008, Microsoft expects revenue in the range of $58.8 billion to $59.7 billion and operating income in the range of $23.3 billion to $23.7 billion. Diluted earnings per share are expected to be between $1.78 and $1.81 for the fiscal year, the company said.

Copyright © 2007 IDG Communications, Inc.

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