Windows 7 Drives Microsoft
Call it the Intel/IBM phenomenon, and Microsoft is apparently suffering a bad case of it.
Microsoft beat on the top and bottom lines, coming in officially at 74 cents a share on $19.02 billion, compared to the 59 cents and $17.9 anticipated respectively.
The results included well over $1 billion in deferred income, or about 14 cents, leading some to initially back it out, settling at 60 cents.
That would be a mistake.
The official, apples to apples number is 74 cents, period, as I tried to explain on the air.
"These numbers are outstanding," says Brendan Barnicle at Pacific Crest Securities.
Look no further than the Windows 7 upgrade cycle, courtesy of retail sales, for the real strength behind this story. The company's Windows unit hit $6.9 billion in sales, way ahead of the $6 billion the Street was looking for. Likewise, very good news in the company's Business Division, which with $4.7 billion in revenue, beat the Street by $100 million. It appears corporate clients are beginning to spend again. The other units were largely in line with expectations with the notable exception of the Entertainment and Device division, which reported $2.9 billion in revenue against the $3.05 billion expected, suggesting some surprising weakness in Xbox.
Looking deeper into the release, operating expenses for 2010 were in line with what the company had already indicated, and as I suggested in my earlier post previewing Microsoft's earnings, the best still might be yet to come.
"They beat on the top and bottom line, reflecting a strong product cycle for Windows 7 and server offerings," Trip Chowdry at Global Equities Research told Reuters. "It also reflects the fact that people haven't updated their systems in the past several years, and have a compelling reason to buy new hardware and software and that's reflected in earnings and revenue."
Laxmi Poruri at Primary Global Research says "This is the best product cycle in years."
This becomes Microsoft's most profitable report by far and after the shorts got finished trading on the confusion, and these numbers began to get digested, Microsoft's almost instant red ink turned green. We'll see what the company might have to say about the rest of the year, but this is a powerful report and puts an exclamation point on the power of the Windows 7 upgrade cycle.
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