Update on Microsoft Earnings

All you can say is 'wow!' Not in an Apple or Google kind of way, but 'wow,' nonetheless.

Microsoft beats the Street by 3 cents a share, coming in with 49 cents instead of the 46 cents that analysts were looking for. That's a staggering 72% year-over-year EPS jump. Topline growth also soared past expectations. Microsoft reported $14.4 billion in revenue versus the $13.89 billion analysts expected.

The company attributes the dramatic revenue rise to "robust" demand for Windows Vista, despite so many headlines indicating otherwise in recent weeks.

These are big numbers, plain and simple and after-market action in Microsoft shares indicates

Seth Wenig

Microsoft's Windows Vista operating software.

that investors were caught off guard, and in a good way.

Two other snippets: Client revenue jumped way beyond the expectations of many analysts, including Brendan Barnicle at Pacific Crest Securities. He anticipated $4.9 billion in Client revenue. Microsoft reported $5.275 billion instead. Server revenue, another key metric, was a little lighter than expected, but not by much: $2.75 billion against the $2.8 billion on Barnicle's model.

As expected, Microsoft issued fairly conservative guidance, though those numbers were brushed aside by investors who expected that often-used tactic, and had the conservative numbers already baked into the stock. For its 4th quarter, Microsoft now offers a 37 cent to 39-cent range when the Street was at 40 cents; a new revenue range of $13.1 billion to $13.4 billion. The Street was at $13.3 billion. For its full fiscal 2008, $1.68 to $1.72, slightly raising the mid-point of $1.69. Total revenue should reach $56.5 billion to $57.5 billion, a nice, but conservative bump from the $56.2 billion analysts were looking for.

This is a solid, if even, strong report from Microsoft, and should do quite a bit to assuage the fears that CEO Steve Ballmer was on his way out the door. We spent a huge amount of time speculating, wondering, and prognosticating just how long he had left in the C-suite. He had a rough year last year with high-profile product delays and production issues. I think just about everyone thought he was on the ropes. (Even though no one ever really offered a short-list of names who could step in to Microsoft and do any better.) This report goes to show that his plan is underway and working, at least for Vista, and should buy Microsoft some more time as it tries to come up with the next-generation moneymaker that will alleviate the company's near total reliance on the sluggish, mature personal computer industry.

How much time, of course, remains to be seen. Great report, but this is sooooooo last quarter. What's coming next, Mr. Ballmer?

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