According to Daisuke Wakabayashi, Microsoft Corp. (MSFT.O: Quote, Profile, Research) posted a 16 percent rise in quarterly profit on Thursday but missed Wall Street expectations and set a disappointing profit target due to increased costs on products from Windows to the new Xbox 360 game console.
Shares in the world’s largest software maker fell 6 percent in after-hours trade after Microsoft said earnings will be hurt by increased investments for its software services business, accelerated Xbox 360 game console shipments and higher costs ahead of crucial new product releases.
Microsoft also predicted personal computer and server computer sales growth would slow in the fiscal year starting July 1. The company plans in the upcoming fiscal year to ship upgrades to its mainstay Windows operating system and Office business software suite.
"Guidance for next year was lighter than anticipated, especially due to the upcoming product release cycle," said Kim Caughey, equity analyst at Fort Pitt Capital Group. "Microsoft often sets the bar low for itself."
Microsoft posted a net profit of $2.98 billion, or 29 cents per share, in its fiscal third quarter ended March 31, compared to $2.56 billion, or 23 cents per diluted share, a year earlier. Revenue rose 13 percent to $10.9 billion.
Excluding legal charges, Microsoft said it earned 31 cents per share. Analysts, on average, had forecast earnings of 33 cents per share on revenue of $11.04 billion, according to Reuters Estimates.
Microsoft Chief Financial Officer Chris Liddell said the higher costs and investments may weaken earnings and profit margins in the short term, but argued they are important for long-term growth.
"We have made a strategic decision with respect to next year that, given the set of opportunities and the revenue growth potential we see, we’re willing to make that trade-off," Liddell said in a conference call with analysts.
Redmond, Washington-based Microsoft provided its first outlook for the coming fiscal year starting July 1. It sees diluted earnings per share to range between $1.36 and $1.41 on revenue of $49.5 billion to $50.5 billion next year.
Wall Street analysts called for earnings per share excluding special charges of around $1.53 in fiscal 2007 on sales of $49.5 billion, according to Reuters Estimates.
