Value Line is regarded as the best independent research available. More than just recommendations, Value Line provides the rationale behind its picks for greater understanding.
- Don D., California
Dow 30 Earnings: Microsoft – Third Quarter 2010
Software giant Microsoft Corp. (MSFT - Free Analyst Report) has reported revenue and earnings for the September quarter of $16.2 billion and $0.62 a share, nicely ahead of our estimates of $15.6 billion and $0.55. Windows 7, customer enthusiasm for Office 2010, and a strong showing from the Entertainment and Devices segment were important factors in the company's financial performance.
Windows 7 continued to benefit from the current PC upgrade cycle, with the emerging market arena being more active than the more developed markets. Microsoft also noted that it expects that its new operating system will find room for expansion as new form factors for computing, such as tablets, are adopted. Meanwhile, small and medium-sized businesses have taken to Office 2010, and the early demand for the new office productivity suite looks like it will have legs. Microsoft also reported that Xbox sales for the quarter were quite good, as gamers continue to find the platform to their liking.
Elsewhere, IT spending by large corporations is on the upswing, at least compared to the pull back recorded due to the recent recession, and the company's Server and Tools group found increased demand for its products and services in the September period. In addition, Microsoft continued making headway in its search business, with Bing handling an increasing number of queries. Finally, the company is finding broad interest in its offerings aimed at cloud computing. Although the success of these initiatives will be realized over the longer term, it appears that Microsoft has positioned itself well to take advantage of businesses’ desire to gain efficiencies from their investments in information technology.
As it stands now, it seems like Microsoft will have a good fiscal 2011 (ends June 30th), with revenue, earnings, and cash flow advancing rapidly for a company of this size. Indeed, its core businesses are functioning quite well. Meanwhile, the introduction of Windows Phone 7 is progressing, shortly moving into the United States in time for holiday gift giving. Adding it all up, though, we have not appreciably changed our revenue and earnings estimates for fiscal 2011, and we continue looking for revenue growth of between 8.5% and 9.0%, and earnings of $2.40 a share.
About The Company: Microsoft Corp. is the largest independent maker of software. It develops and sells products for a wide range of computing devices. The company also sells the Xbox video game console. Revenue sources in fiscal 2010 were as follows: Microsoft Business, 29.8% of total; Windows & Windows Live, 29.6%; Server and Tools, 23.8%; Entertainment & Devices, 12.9%; Online Services, 3.5%; Other, 0.4%. Research & development spending as a percent of 2010 sales was 13.9%.
* This report includes late-breaking news not reflected in our full-page review of this company.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.