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Windows sales pause hits Microsoft results

Windows sales pause hits Microsoft results

Microsoft's net income fell 28 percent year over year for its 2007 second fiscal quarter as it spent ahead of its mass market launch of Windows Vista this month.

Revenue was up six percent despite the fact that the company deferred US$1.64 billion of revenue and operating income from its second quarter to its third because of Windows Vista and Office 2007 coupons issued over the winter holidays.

For the second quarter ended December 31, 2006, Microsoft reported revenue of $12.54 billion on net income of $2.63 billion, or $0.26 earnings per share (EPS). Both revenue and EPS were ahead of estimates from Thomson Financial analysts, who predicted Microsoft would earn $12.1 billion, or $0.23 per share.

However, while revenue was up, net income and EPS were down for the same time period last year, when Microsoft reported revenue of $11.84 billion and net income of $3.65 billion, or $0.34 per share. Analysts were expecting a drop in earnings for the vendor as it gears up for the biggest consumer release of its Windows OS in five years on Tuesday. Microsoft has been spending a considerable amount of money to market Windows Vista, and will hold launch events around the world on Monday and Tuesday to mark the consumer debut of the OS.

The drop in net income also can be attributed to a pause in demand for Windows and other products as consumers prepare for the release of Vista, analysts say.

The deferral of revenue and operating income, as well as the deferral of $1.13 billion of net income and $0.11 of diluted EPS to the second quarter are due primarily to technology guarantee programmes Microsoft unveiled on October 24, 2006, for Windows Vista and Microsoft Office, Microsoft said. Those programmes provided customers purchasing new PCs capable of running Windows Vista with coupons to buy discounted upgrades to Vista and Office 2007 when they became available on January 30. Microsoft originally expected to have both software packages out in time for the busy holiday shopping season in 2006, but had to delay both releases.

Looking ahead to its fiscal third quarter, which ends March 31 and will reflect the initial impact of Windows Vista and Office 2007 consumer sales, Microsoft expects revenue in the range of $13.7 billion to $14 billion, including the $1.68 billion revenue deferral. Operating income is expected to be in the range of $6.1 billion to $6.3 billion, and EPS are expected to be $0.45 to $0.46.

For the full fiscal year ending June 30, 2007, Microsoft expects revenue in the range of $50.2 billion to $50.7 billion; operating income in the range of $19.3 billion to $19.7 billion; and diluted EPS in the range of $1.45 to $1.47.


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