Microsoft posts healthy Q4 profit, but misses expectations

Microsoft posted a net profit of $4.3 billion in its fiscal fourth quarter or 46 cents per diluted share, vs.

$3.04 billion (31 cents per diluted share) for the year-ago period. It announced revenue of $15.84 billion for the period, ended June 30, an 18% increase over the same period of the prior year. Analysts, however, expected profits of 47 cents a diluted share. On the other hand, revenue beat their expectations of $15.65, according to Reuters. The company topped the $60 billion mark in annual revenue ($60.4 billion), too, compared to $51.1 billion in 2007.

Microsoft dropped its Q1 2009 estimates and adjusted its 2009 full-year estimates. For the current quarter, Microsoft expects earnings per share to range from 47 cents to 48 cents on revenue between $14.7 billion to $14.9 billion. Wall Street expects earnings of 50 cents per share on $15.06 billion in revenue, Reuters says. Microsoft is also forecasting full 2009 earnings to range between $2.12 and $2.18 per share on revenue of $67.3 billion to $68.1 billion.

The missed profit mark and the lowered estimates caused Wall Street to send Microsoft's shares down about 5 percent in after hours trading.

Microsoft said Vista is selling like hotcakes and is one reason for its double-digit revenue growth. It posted $4.4 billion in revenue for the quarter from its Client software division (Vista), with OEM license units growing by 22%. The company posted $16.9 billion in annual revenue from the business unit. OEM revenue grew by 13% in the year. Meanwhile, retail and enterprise license revenue grew by 8% with Microsoft crediting its anti-piracy efforts (as well as licenses to enterprises) for that growth.

Enterprises were clearly more gung ho for server products. Revenue grew 19% in the Server and Tools unit, Microsoft said, with credit going mostly to increased licenses for Windows Server 2008 and SQL Server. The Server unit is also the one that sells developer tools, training, certification, Microsoft Press books and professional services. All told, the unit had quarterly revenue of $3.7 billion, quarterly profits of $1.4 billion and annual revenue of $13.2 billion/profits of $4.6 billion.

Xbox and online advertising were the sore spots of the quarter and the year. The Online Services Business posted $838 million in revenue for quarter, up 24% helped by the business brought in by aQuantive. For the year it brought in $3.2 in revenue. But the unit lost $488 million in the quarter and $1.2 billion for the year. Microsoft says the loss reflects increased investments in its data centers as well as costs associated with the aQuantive deal.

The Entertainment and Devices Division didn't shine either. On the upside the company said it shipped 1.3 million Xbox 360 consoles during the quarter compared to 0.7 million in the same period last year. But the unit still posted a loss of $188 million for the quarter, with the acquisition of Danger accounting for about $24 million, Microsoft said.

Here's a final interesting tidbit from the company's July 17 8K filing. Microsoft counts employee benefits such as stock options as a research and development expense if those employees are classified as involved with product development. The company says,

"Research and development expenses include payroll, employee benefits, stock-based compensation expense, and other headcount-related costs associated with product development."

It says it invested $8.2 billion in R&D over the year, or 14% of its revenue. In the meantime, the company is sitting on $23.7 billion in cash (and cash equivelents). CEO Steve Ballmer is clearly itching to use some of it on a big Internet advertising buy.

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