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Summary
conference date: April 27, 2006
for quarter ending: March 31, 2006 (3rd quarter)
Overview: Solid demand, revenue, earnings, but decreased guidance and accelerated investment means lowered EPS expectations for fiscal 2007.
Basic data:
Revenues of $10.9 billion. Net income of $2.98 billion or .29 per share, up 26% over year-earlier. Cost of revenue grew faster than revenue due to XBox growth, investment in MSN, and hiring for product development. $4.5 billion cash generated from operations, a decline from year-earlier due to timeing of legal payments.
Bought back $4.9 billion in stock during quarter.
Cash and short-term investments ended at $34.8 billion. Up slightly from prior quarter.
Guidance:
Expects strong double-digit revenue growth, but guidance is down slightly from January.
June revenues of $11.5 to $11.7 billion. EPS .30
Preliminary fiscal 2007 (ending June 2007): Revenues of $49.5 to $50.5 billion, EPS $1.36 to $1.41 (11 to 16% growth on GAAP basis). Forecast assumes moderating PC hardware growth rate.
Conference Highlights:
Strong demand for product, notably Home & Entertainment segment up 80% with XBox sales up 133%. 5.0 to 5.5 million consoles expected shipped for fiscal year.
SQL Server had very high growth rate. Server & Tools revenue grew 16%. Strong demand for Windows Mobile. IT spending enviroment in line with expectations. PC hardware market growth was 12 to 13%; consumer outpaced business growth.
Will accelerate rate in which they invest in their business.
Preparing for the most significant set of product launches in a decade.
Bookings growth was 15%.
Negative impact of 1% by foreign exchange rates.
30% growth of SQL Server 2005, dramatically outpacing competitors.
OfficeLive Beta has over 50,000 participants. Mobile growth in excess of 40%.
Search advertising revenue was down. Will continue to invest heavilly to improve results.
Dynamics products have good momentum going quarter.
Accelerating pace of targetted acquisitions.
Q&A:
2007 guidance, moderation in PC/server market? Has been moderating this last year down to 11%; does not expect further sigificant weakening.
Is European fine built into guidance? Would not comment except no change in previous methodology.
Op income growth won't grow as fast as revenue growth because of increased investments.
More questions about increased investment strategy, with same general answer: it is what is best for the long run. One analyst quantified at $2.4 billion expenses he did not predict. Microsoft characterized as a broad-based set of initiatives rather than a single Trojan horse.
Stock based compensation? No surprises expected. Is hiring a large number of people.
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Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. Before making or terminating an investment you should always verify any factual basis of your decision from multiple independent sources.
Copyright 2006 William P. Meyers