July 22, 2010 / 10:02 AM / 8 years ago

Microsoft profit beats Street but stock unmoved

SEATTLE (Reuters) - Microsoft Corp easily beat Wall Street forecasts with a 48 percent rise in quarterly profit, but its shares stood unmoved in the absence of powerful new signs of a rebound in global tech spending.

Packages of the new Windows operating system, Windows 7 sit on a desk before being installed in Golden, Colorado in this October 22, 2009 file photo. REUTERS/Rick Wilking

The world’s largest software company said business customers are continuing to come back to the market for new personal computers, about nine-tenths of which run on Microsoft’s software, but it failed to match chipmaker Intel Corp’s strongly optimistic tone last week.

Investors had sent the company’s stock higher in past weeks, outperforming the Nasdaq. But with Microsoft now overtaken by an aggressive Apple Inc in global market value rankings, analysts now question where growth will come from after Windows 7 and Office 2010 run their course.

Microsoft said it sold 175 million licenses for its new Windows 7 operating system since its launch last October, a performance rated solid but unsurprising by analysts.

“It’s a great quarter — but does that matter?” said Colin Gillis, analyst at BGC Partners. “We all knew the business refresh cycle was in place. This is the dilemma for Microsoft — how do they get the stock moving again?”

The company, which cut about 5 percent of its workforce last year to keep a lid on costs, slightly lowered its operating expense target for the current fiscal year, which started on July 1.

It now expects to spend between $26.9 billion and $27.3 billion this fiscal year, down from its range of $27 billion to $27.5 billion set out in March.


Analysts say Microsoft’s stock may find it tough to gain altitude in the short term. Investors are keen to see new phones running Windows Phone 7, Microsoft’s attempt to make up lost ground in the mobile sector, which will be appearing in stores in the next few months.

The company hopes to raise consumers’ pulses with a range of Windows-powered tablet devices and its untested Kinect motion gaming platform.

And its Bing Internet search engine is posting solid market share growth but remains miles behind Google Inc.

“It was strong in the areas that we thought they would be strong in, which is more of the business orientated, operating systems,” aid Kim Caughey, senior analyst at Fort Pitt Capital Group, which owns roughly 431,000 Microsoft shares.

But “my hot button as an owner of this stock is what is their mobile direction,” she said. “Arch rivals Apple and Google seem to have an answer for that. I think the company really has to have an answer for this. I think they have to have a path.”

Microsoft on Thursday reported fiscal fourth-quarter profit of $4.52 billion, or 51 cents per share, up from $3.04 billion, or 34 cents per share, in the year-ago quarter.

That beat analysts’ average expectation of 46 cents per share, according to Thomson Reuters I/B/E/S.

Sales rose 22 percent to $16.04 billion, beating analysts’ $15.27 billion estimate, reflecting the continuing recovery in tech spending this year.

Global PC sales surged 22.4 percent last quarter, industry tracker IDC said this week, helped by strong demand from businesses, signaling a strong outlook for Microsoft.

“We still believe in the business PC refresh, which is the single biggest thing ongoing throughout this year,” Chief Financial Officer Peter Klein said in a telephone interview.

He said the new Office 2010 suite of applications, launched earlier this year, was off to a strong start but it was too early to judge the financial impact. He said the current “back to school” quarter should show how well sales are faring.

Microsoft shares were little changed at $25.80 after closing at $25.84 on Nasdaq.

The stock — which is still hovering around the same level it was five years ago — is down 15 percent this year, compared with a 1 percent fall in the Nasdaq composite index.

Additional reporting by Jim Finkle; Editing by Edwin Chan and Richard Chang

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