Microsoft Posts Record Third Quarter Profits, Credits Windows Vista

The company said it achieved record third quarter profits partly on the strength of sales of the new Windows Vista operating system.
Despite signs that businesses are lukewarm to Microsoft's Windows Vista, the company on Thursday said it achieved record third quarter profits partly on the strength of sales of the new operating system.

For the three months ended March 31, Microsoft said net income rose 65% year-over-year to a record $4.93 billion. The profits were driven by $14.4 billion in sales, a 32% increase over the previous year. Earnings per share jumped 72% to 50 cents.

On average, analysts polled by Thomson Financial expected Microsoft to report per-share earnings of 46 cents.

Microsoft's third quarter saw the consumer launch of Windows Vista at the end of January, as well as the release of the Office 2007 productivity suite. The new products helped drive a 67% increase in sales of the company's client side offerings to $5.27 billion.

Sales of server products rose 15% to $2.75 billion, while revenue from online services increased 11% to $623 million -- a modest number that may provoke some concern in Redmond as Microsoft is trying to match Google's blockbuster growth in Internet-related business.

Looking ahead, Microsoft said it expects to post fourth quarter revenue in the range of $13.1 billion to $13.4 billion and earnings per share of 37 cents to 39 cents. For the full fiscal year 2008, the company is forecasting revenue of between $56.5 billion and $57.5 billion and earnings per share of $1.68 to $1.72.

Microsoft's overall third quarter sales figures include $1.67 billion in deferred revenue from a Windows Vista upgrade program that the company offered prior to Vista's launch.

Despite the strong numbers, signs are emerging that businesses may be slow to embrace Windows Vista over the long term due to concerns about application compatibility and hardware requirements. Thirty percent of businesses surveyed by InformationWeek said they have no plans to upgrade to the new operating system.