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Microsoft Posts Q3 Earnings

metue earnings wrap imageLast week under the weight of the economy Google reported its first sequential drop in revenue since going public in 2004.  Thursday, Microsoft revealed similar wounds.

Hurt by weak PC sales, the company posted its first year over year revenue decline in twenty three years.

For the 3rd quarter, Microsoft’s net income sank 32% to $2.98b, or 33 cents a share.  That included a onetime charge of 6 cents a share for severance payments and investment write-downs.     Less the onetime charges, the result matched analyst consensus expectations.

Operating income was $4.4b ($4.7b adjusted for severance charges).  Free cash flow was $5.4b.

Overall, sales were down 5.6% to $13.6b.  Analysts had expected better ($14.1b).

msft-q3.pngOn a positive, the company did reaffirm its on track to save $1.5b in Op-Expenses by mid 2010. That kind of diligent cost cutting helped the company stay close to expectations even as sales slumped.

Traders in after-hours markets seemed satisfied with the company’s plans for the remainder of the year; looking to what’s next more than what’s now.  That was a tone Microsoft took as well.  CFO Chris Liddel said, “We remain more cautious than most about the state of the world economy.  While we’d all like to think the recovery will be soon and painless, we believe it will be slow and gradual.”

Looking at individual business segments:
msft-online-rev.pngIn revenue, the Client business was hardest hit, dropping from $4.03b to $3.04 b year over year.  Entertainment and Devices fell off slightly from $1.59b to $1.57.  Online Services, an important part of Microsoft’s future, dropped from $843m to $721m.  The Business division sunk from $4.73b to $4.51.  Server and Tools was the bright spot, growing from $3.24 to $3.47b.

Running the revenue out to operating income, the story was similar: the Client group shrunk from $3.12b to $2.51b.  Losses at the Online Services division more than doubled to   $575m.  Entertainment and Devices slipped from the black to red with a loss of $31m (versus gain of $106m last year).  Server and Tools was again, the highlight, climbing from $1.08b to $1.34.

ed-msft.pngAnother positive, Entertainment and Devices reported Xbox 360 console sales were up almost 30%.  Sales of PC and Xbox games were also up even though the division itself saw its income evaporate.

Last quarter Microsoft said the volatility of the market conditions would make it impossible for them to offer quantitative revenue and EPS guidance for the rest of the fiscal year.  They held to that position in this quarter’s announcements.  Operating Expense Guidance was provided at a range of $26.7b to $26.9b.

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More detailed press coverage of Microsoft’s Earnings can be found at:
Yahoo Finance
Google Finance
Microsoft Investor Relations

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