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Microsoft's results smashed Wall Street expectations Friday, sending its shares up 8 percent, as the PC market improved and sales of its Windows software and Halo video game were stronger than expected.
And Goldman Sachs has raised Microsoft's target to $34 from $30, CNBC has learned. Goldman notes the PC upgrade cycle, stabilization/recovery in enterprise IT spending, a robust product pipeline, a nd currency tailwind. Rating is buy.
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Microsoft's results topped a big week for the world's largest software company, which launched its Windows 7 operating system to positive reviews on Thursday, as it looks to regain leadership in the technology sector from rivals Apple [AAPL
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"Microsoft [MSFT
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] is back. They are able to succeed despite heightened competition from Apple's share gain and Google's great brand," said Katherine Egbert, an analyst with Jefferies & Co. "The numbers were unbelievable. An absolutely blowout."
With their biggest one-day jump since April, Microsoft's shares hit their highest level since June 2008, pushing up the Nasdaq overall. The results follow better-than-expected earnings from technology bellwethers Intel [INTC
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], Google and Apple.
Fiscal first-quarter profit fell 18 percent to $3.57 billion, or 40 cents per share, compared with $4.37 billion, or 48 cents per share, in the year-ago quarter.
Wall Street had expected much worse, calling for profit of 32 cents per share, on average, according to Thomson Reuters I/B/E/S.
Sales fell 14 percent to $12.92 billion, partly reduced by a deferral of $1.47 billion in revenue to future quarters related to Microsoft's free upgrade to Windows 7 for recent buyers of the predecessor Vista system.
That beat analysts' average forecast of $12.31 billion, the first time the software maker had done so in a year.
Microsoft's results are closely tied to sales of PCs, which rose in the latest quarter by about 2 percent after two quarters of declines.
The company did not include any pre-sales of Windows 7 in its latest results, offering the hope that the current quarter will show a boost in sales from the new system.
"You are seeing some of the benefit of the improvement in PCs that we have heard about," said Brendan Barnicle at Pacific Crest Securities. "This is a trend. They've got some good momentum behind them and it's just going to get accelerated now that you have Windows 7 out in the market."
The company, which is tightening its belt in the economic slowdown, also cut its outlook for operating expenses for the full fiscal year to $26.2 billion from its previous target of $26.5 billion.
Quarterly profit fell in Microsoft's main units, producing the Windows operating system and Office suite of applications. Profit rose in its server unit and its entertainment and devices unit, which makes the Xbox console and Halo video game series.
Microsoft shares were up more than 7 percent in early Nasdaq trading. They have risen 92 percent since hitting a more-than 10 year low in March.
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