Microsoft Earnings

Talk about good timing: just as the market begins to rally at the close Microsoft jams the stick shift into 6th gear with an earnings report that should do some good when assuaging all that economic panic.

Microsoft

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[AAPL  Loading...      ()   ]beat the Street with its 48 cents a share in EPS versus the 47 cents analysts were expecting, on much better than expected revenue: $15.06 billion against the $14.8 billion anticipated.

Each of the company's five key business units came in strong: Client software reporting $4.2 billion ($4.38 billion expected); Server unit where there was concern that Microsoft's business customers would curtail spending was right in line with $3.4 billion ($3.45 billion expected); the company's online business beat the Street by a surprisingly large margin, reporting $770 million in revenue versus the $718 million expected (It still needs Yahoo!); the Business division handily beat the $4.73 billion in revenue expected by coming in at $4.95 billion instead; and the Entertainment and Device division, where some analysts were concerned about an Xbox slowdown also beat and beat big: $1.8 billion versus the $1.45 billion expected. And that's bad news for Sony.

Guidance is where the Microsoft story starts to get interesting. Most analysts expected the company to miss its second fiscal quarter expectations because of the widespread economic slowdown gripping the globe. The shortfall against Wall Street expectations wasn't nearly as bad as some had feared with Microsoft expecting a new EPS range of 51 cents to 53 cents. Wall Street consensus was 55 cents. On the topline, Microsoft now expects a revenue range of $17.3 billion to $17.8 billion. Analysts projected $17.97 billion.

For the full year fiscal 2009, Microsoft now expects an EPS range of $2 to $2.10. Analysts were looking for $2.11 but I spoke to several who told me anything above $2 would be considered "positive" for the shares. Just yesterday, UBS took its full year EPS guidance down to $2.04 and that raised some eyebrows. The company's revenue range now sits at $64.9 billion to $66.4 billion. That's just shy of the $66.5 billion consensus.

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Taken as a whole, this is a remarkably strong report even in the context of the lowered expectations this company has had to endure these last few weeks. That's because there has been borderline panic about how a bellwether company was handling the economic meltdown that's taken its toll on so many other companies already. Microsoft shares are down 19 percent since the last time this company reported earnings.

Analyst reaction is already coming in. From Toan Tran at Morningstar: "Microsoft reported a very solid Q1. What people were expecting was for them to take down guidance and they did. But it was only marginally lower. I think people were expecting much worse. Everyone was worried about the guidance. If you are a Microsoft investor you should be happy that Microsoft thinks they will weather the storm relatively well."

From Kim Caughey at Fort Pitt Capital Group: "One of the things we look at Microsoft for is their outlook for how business are doing, and it seems as if their business-oriented division did pretty well in the quarter."

From David Katz at Matrix Asset Advisors: "I think that over the next 12 months the stock will move meaningfully higher and get back in the $30 range. The key is that it is doing well in a very difficult environment. The outlook is very, very reasonable and it allows for very good earnings. It's important to remember that Microsoft historically is very conservative in its outlook. If the company shaving the outlook, there is a very good chance that it could beat it."

And that's the kind of reaction good for a healthy percentage move north in Microsoft shares, which is exactly what's happening right now. This was a good, solid report. We'll see what it does for broader tech on Friday.

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