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Microsoft Posts Record Quarterly Sales, But Profits Fall 28% On Vista Delay

Company says it pushed $1.13 billion in net income into the next quarter to account for a program that lets buyers of Windows XP PCs get a low-cost upgrade to Windows Vista.

Microsoft on Thursday said net income for its fiscal second quarter fell 28% as delays in shipping its new Windows Vista operating system forced the software maker to defer some profits and revenue to the third quarter.

For the three months ended Dec. 31, Microsoft's net income fell 28% year-over-year to $2.63 billion. Microsoft said it pushed $1.13 billion in net income to the current third quarter to account for a program through which consumers that previously purchased Windows XP PCs are eligible for a low-cost upgrade to the retail version of Windows Vista when it becomes generally available next week.

Microsoft had originally planned to ship its new operating system prior to the 2006 holiday season.

The company also deferred $1.64 billion in revenue to the third quarter to account for the upgrade program, but still managed to increase sales 6% year-over-year to a quarterly record of $12.54 billion. With $0.11 in earnings per share deferred to the third quarter, Microsoft posted second quarter EPS of $0.26, a decline of 24% year over year.

Analysts polled by Thomson Financial were, on average, expecting Microsoft to report second quarter earnings per share of $0.23.

For its strong sales performance, Microsoft credited last year's introductions of the Xbox 360 gaming system, Microsoft SQL Server 2005, Visual Studio 2005, and Dynamics CRM 3.0 customer relationship management software. One year after their launch, those products combined have contributed $1 billion in revenue growth, the company said.

For the current third quarter, Microsoft said it's expecting revenue to fall within a range between $13.7 billion and $14 billion. It's expecting to post per-share earnings of between $0.45 and $0.46 for the current quarter. For its full fiscal year 2007, Microsoft said it's expecting revenues to come in at between $50.2 billion and $50.7 billion, with EPS between $1.45 and $1.47.

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