MSFT: Microsoft Reports First Quarter Earnings, Delivers Double Digit Revenue Growth

Microsoft Corp. today announced first quarter revenue of $10.81 billion for the period ended September 30, 2006, an 11% increase over the same quarter of the prior year. Operating income for the quarter was $4.47 billion, an 11% increase compared with $4.05 billion in the prior year period. Net income and diluted earnings per share for the first quarter were $3.48 billion and $0.35 per share. For the same quarter of the previous year, net income and diluted earnings per share were $3.14 billion and $0.29, including a $0.02 per share charge for certain legal charges.

“The solid revenue results for the quarter were at the top end of our expectations and represent a very good start to the fiscal year,” said Chris Liddell, chief financial officer at Microsoft.

Server & Tools revenue increased 17% over the comparable quarter in the prior year, reflecting healthy performance for offerings such as SQL Server™ 2005, Windows Server®, Visual Studio® 2005 and BizTalk® Server. SQL Server experienced revenue growth of over 30%, as customers are increasingly deploying SQL Server for their mission critical, transaction-oriented databases.

Entertainment and Devices Division revenue growth of 70% over the prior year was driven by demand for Xbox 360™ consoles, software, peripherals, and Xbox Live®. Xbox 360 has sold 6 million consoles worldwide life to date and achieved record cumulative attach rates for software and peripherals in the United States, while Xbox Live passed the four million member mark during the quarter.

The company has made considerable progress toward delivering two highly anticipated products to customers with the forthcoming releases of Windows Vista™ and the 2007 Microsoft® Office system. During the quarter, the first release candidate for Windows Vista was made available to nearly 5 million customers worldwide, and the beta 2 version of the 2007 Microsoft Office system was in use by over 3 million customers.

“The strong results are a reflection of our solid execution and ongoing focus on operational excellence,” said Kevin Turner, chief operating officer at Microsoft. “As we look to the upcoming releases of Windows Vista, the 2007 Microsoft Office system and Exchange Server 2007, we are excited about these products and believe they will deliver unprecedented levels of business value to our customers.”

Business Outlook

Microsoft management offers the following guidance for the fiscal second quarter ending December 31, 2006:

• Revenue is expected to be in the range of $11.8 billion to $12.4 billion, which reflects approximately $1.5 billion of revenue deferrals that will be captured in the fiscal third quarter as noted below.

• Operating income is expected to be in the range of $2.9 billion to $3.1 billion, which reflects approximately $1.5 billion of deferrals noted below.

• Diluted earnings per share are expected to be $0.22 to $0.24, which includes an $0.11 per share impact for deferrals noted below.


Note: The guidance above includes the impact of an approximately $1.5 billion of revenue deferral from the second to the third quarter, primarily related to the technology guarantee programs announced on October 24, 2006 for Windows Vista and the 2007 Microsoft Office system.

• Management offers the following guidance for the full fiscal year ending June 30, 2007:

• Revenue is expected to be in the range of $50.0 billion to $50.9 billion.

• Operating income is expected to be in the range of $19.1 billion to $19.5 billion.

• Diluted earnings per share are expected to be in the range of $1.43 to $1.46.