Microsoft Shares Up on Solid Q3 Results

Shares of Microsoft Corp. (MSFT) rose Friday after the world's largest software maker reported a third-quarter profit that nearly doubled from a year ago, despite sales that fell short of Wall Street forecasts due to leaner licensing business and a sharp drop in the dollar's value.

Microsoft shares rose 63 cents, or 2.6 percent, to $25.08 on the Nasdaq Stock Market (search).

The company reported its fiscal third-quarter earnings after financial markets closed on Thursday.

For the quarter ending March 31, the Redmond, Wash.-based company earned $2.56 billion, or 23 cents per share, up from $1.32 billion, or 12 cents per share, a year ago.

Analysts surveyed by Thomson Financial were looking for the company to post earnings of 32 cents per share on sales of $9.83 billion in the latest quarter. The company would have met earnings expectations, except for legal charges of 5 cents a share and a 4-cent-per-share charge for the expense of stock-based compensation required under new accounting rules.

Revenue rose 5 percent, from $9.18 billion to $9.62 billion, short of analysts' estimates.

Microsoft blamed the shortfall primarily on a greater-than-expected decline in commercial and retail licensing for the Windows operating system (search) and an unfavorable exchange rate in the past few months.

"We had a good quarter overall with some real strong growth out of our server and tools business," said Scott Di Valerio, Microsoft corporate vice president and controller. That unit posted a profit of $824 million on revenue of $2.44 billion, up about 33 percent from earnings of $616 million on revenue of $2.2 billion in the year-ago period.

The Windows and Office software divisions, the company's two cash cows, showed more modest gains — a cause for concern among some analysts.

Profits on Windows were $2.34 billion on sales of $2.99 billion, up about 3 percent from the year-ago period. Earnings in the Office division were $2 billion on sales of $2.77 billion, up 2.5 percent from third-quarter 2004.

"What's paying the bills? Office and Windows pay the bills, so it would be more comforting if those two divisions were showing stronger year-to-year growth," said Joe Wilcox, an analyst with Jupiter Research.

For the fiscal year ending June 30, Microsoft now expects to earn between $1.26 and $1.30 per share, compared to its previous guidance of $1.09 and $1.11 per share. Revenue is expected to be between $43.3 billion and $44.1 billion, compared to previous guidance of $39.8 billion and $40 billion.