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Microsoft net beats expectations, readies new mobile devices

The software company's net income was $6.1 billion, or 72 cents per share, for the third quarter, which ended in March.

twitter-logoAssociated Press | April 19, 2013 | Updated 15:42 IST

Microsoft reported financial results for its latest quarter on Thursday, showing a deep - but largely expected - impact from the slowdown in global PC sales.

Investors seemed to be expecting worse after some recent dismal reports on the PC slump.

Last week, research firm IDC said PC sales fell 14 per cent in the quarter, a record. It blamed, in part, Microsoft's new Windows 8, which makes a clean break with the look and workings of old Windows in order to work better with touch screens.

Buyers seem daunted by the new interface, IDC said.

The software company's net income was $6.1 billion, or 72 cents per share, for the third quarter, which ended in March. That was up 18 per cent from $5.1 billion, or 60 cents per share, a year ago, and beat the forecast of analysts polled by FactSet, at 68 cents.

Revenue was $20.5 billion, up 18 per cent from a year ago and matching analyst forecasts.

Both earnings and revenue were skewed by software accounting practices. Microsoft offered a $15 upgrade to Windows 8 for Windows 7 PCs purchased June 2 or later. It wasn't able to start recognizing the full value of the software licenses until these offers were redeemed or expired. In the latest quarter, Microsoft was able to recognise $1.1 billion of such deferred Windows revenue, greatly boosting the overall figure.

Stripping out the deferred revenue, overall revenue rose 8 per cent, and revenue in the Windows division was flat with a year ago. Even if consumers aren't buying many Windows 8 PCs, businesses are still upgrading from Windows XP to Windows 7 at a rapid clip.

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Stripping out deferred revenue and the effect of a $733 million fine levied by the European Commission, Microsoft earned 65 cents per share, up 8 per cent from a year ago.

At the company's largest division, Business, revenue rose 8 per cent from a year ago to $6.3 billion. The increase was 5 per cent adjusting for upgrade offers for the new Office suite.

Microsoft Corp is working with manufacturers to produce a line of small touch-screen devices powered by Windows, apparently intended to compete with 7-inch tablets like the iPad Mini and Amazon Kindle Fire.

The company is struggling to extend its software into smartphones and tablets as consumers are turning away from PCs, the foundation of its empire.

Over the winter, it launched two larger tablets under the Surface brand. And in October, the company took a large stake in Barnes & Noble's digital unit, which sells a line of entertainment-oriented 7-inch tablets under the Nook brand.

Peter Klein, Microsoft's chief financial officer, told investors and analysts on a conference call on Thursday that the new devices will be available in coming months at competitive prices.

Klein said that an updated version of Windows 8 to be released later this year and code-named "Blue", will be in part a response to "customer feedback".

Microsoft also said CFO Klein is leaving at the end of the financial year, in June. He has been in his current role for four years and at the company for 11 years. The company plans to name a new CFO from its finance team in the next few weeks.

The Washington-based company's shares rose 81 cents, or 2.8 per cent, to $29.60 in extended trading, after the release of the report.

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