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Microsoft Beats Forecasts on Strong PC, Game Demand

By Reuters
Published | Updated

SEATTLE – Microsoft Corp. (MSFT), the world's largest software maker, on Thursday reported better-than-expected profit and revenue growth on stronger demand for personal computers and video games.

Microsoft also raised its outlook for its current fiscal year ending in June, and shares rose 1.7 percent in after-hours trade.

The Redmond, Wash.-based company reported a net profit of $3.46 billion, or 32 cents per share, for its fiscal second quarter ended in December, compared with a profit of $1.55 billion, or 14 cents per share, a year earlier.

The result beat the company's forecast and analysts' average expectations for a net profit of 29 cents per share, according to forecasts compiled by Reuters Estimates.

Excluding stock-based compensation Microsoft said it had a profit of 35 cents per share, compared with Wall Street expectations of 33 cents, according to Reuters Estimates.

Revenue rose 6.6 percent to $10.82 billion.

"The PC environment is actually quite healthy," Microsoft Chief Financial Officer John Connors said in an interview, adding that big companies were spending more on software for servers, or networked computers.

"Home and entertainment was also a highlight for us.... We're very pleased with 'Halo 2' (search) results and Xbox Live," Connors said.

Microsoft reported that sales of the video game "Halo 2" for its Xbox game console (search) improved results in its home and entertainment division.

Analysts had been looking for such an improvement, as it could raise prospects for its next generation of Xbox video game consoles, expected by the 2005 holiday season.

For the Microsoft's current third fiscal quarter, the company expects a profit of 27 or 28 cents a share on revenue between $9.7 billion and $9.8 billion. Analysts had been expecting on average a profit of 27 cents a share on $9.66 billion in revenue.

For the full fiscal year to June, Microsoft raised its earnings outlook to $1.09 to $1.11 a share from its previous forecast of $1.07 to $1.09.

The revenue outlook for fiscal 2005 was raised to $39.8 billion to $40.0 billion from the previous projection of $38.9 to $39.2 billion.

For fiscal 2005 Microsoft also forecast PC shipment growth of 9 percent to 11 percent and server unit shipment growth of 13 percent to 15 percent, both below fiscal 2004.

Shares in Microsoft, based in Redmond, Washington, rose 44 cents to $26.55 in after-hours trade on the Inet electronic brokerage from a $26.11 Nasdaq close.