Microsoft Corp., the world’s largest software maker, said first-quarter profit rose 11 percent as sales of software for server computers surpassed analysts’ estimates.
Net income increased to $3.48 billion, or 35 cents a share, from $3.14 billion, or 29 cents, a year earlier, the Redmond, Washington-based company said today in a statement. Sales advanced 11 percent to $10.8 billion.
Revenue from database programs and servers to run corporate networks rose 17 percent, beating an estimate by UBS AG analyst Heather Bellini. The growth helped counter lower demand for Office and Windows for personal computers as customers held off purchases to wait for the delayed Vista operating system.
“The server business has been going gangbusters for this company for several years now,” said Charles Di Bona, an analyst with Sanford C. Bernstein in San Francisco. He rates the shares “outperform” and said he doesn’t own them. “It’s a hidden gem. It’s a real growth engine for the company.” Microsoft shares fell 12 cents to $28.23 in extended trading.
They rose 17 percent this quarter, their best performance since the three months through December 2002. The stock gained 4 cents to $28.35 at 4 p.m. New York time in Nasdaq Stock Market composite trading.
Forecast Server sales advanced to $2.5 billion, exceeding the $2.43 billion estimate of Bellini, the top-ranked software analyst by Institutional Investor magazine. Chief Executive Officer Steve Ballmer has been relying on Windows Server 2003 and the SQL Server 2005 database software to shore up growth.
Windows Vista and Office 2007 will be released to businesses in the current quarter and consumers next quarter.
Microsoft said profit for the quarter that started Oct. 1 will be 22 cents to 24 cents a share on sales of $11.8 billion to $12.4 billion. Bellini, who lowered her estimates because discount coupons Microsoft announced for Vista this week, had expected 28 cents and $11.9 billion. Thirty analysts surveyed by Thomson Financial anticipated 34 cents and $12.9 billion.
In addition to investments in the server unit, Ballmer, 50, stepped up spending on the Xbox 360 video-game console, MSN Web services and the Zune music player. The Xbox is still losing money as Microsoft spends to gain share from Sony Corp.’s PlayStation, and competition with Google Inc. is making it harder for Microsoft’s new ad product to generate sales. Zune will go on sale in November in a market dominated by Apple Computer Inc.
Profit in the first quarter beat a Bellini’s 31-cent estimate as Microsoft said it would push some spending into the current quarter. Analysts in a Thomson Financial survey also predicted a profit of 31 cents a share on average.
Vista Release Microsoft said on Oct. 24 that it will defer about $1.5 billion in sales from that quarter to the following one to account for upgrade coupons for Vista and Office 2007.
Most analysts haven’t yet adjusted their estimates to include that.
Jane Snorek, who helps manage about $90 billion, including Microsoft shares, at FAF Advisors in Minneapolis, said investors won’t become more interested in the stock until the company releases Vista.
Profit for the current year will be $1.43 to $1.46 a share, on sales of $50 billion to $50.9 billion, compared with Microsoft’s July forecast of $1.43 to $1.47 on sales of $49.7 billion to $50.7 billion. Analysts surveyed by Thomson Financial expect profit of $1.44 on sales of $50.2 billion.
In the meantime, Windows for PC sales have risen more slowly than the overall PC market for the past two years. Office sales have increased less than 10 percent.
