Microsoft Reports Fiscal 1Q Earnings Up 11 Percent

Microsoft Corp. said its fiscal first-quarter earnings rose 11 percent, beating analysts' expectations, as the software company benefited from stronger-than-expected computer and server shipments.

But shares in the company fell in after-hours trading Thursday as analysts expressed concern about the prospects for long-term corporate contracts.

For the three months ended Sept. 30, the Redmond, Wash.-based company reported earnings of $2.90 billion, or 27 cents per share, compared with earnings of $2.61 billion, or 24 cents per share, in the same period a year earlier.

The most recent quarterly earnings included a stock-based compensation expense of 5 cents per share. Without that, the company would have reported earnings of 32 cents per share.

Analysts polled by Thomson First Call had been expecting earnings of 30 cents per share, with estimates between 29 cents and 32 cents per share, on revenue of nearly $9 billion.Revenue was $9.19 billion, up 12 percent over $8.22 billion a year earlier.

Analyst Jamie Friedman with Fulcrum Global Partners said the company's quarterly numbers looked fairly strong overall but said Wall Street would likely be concerned about the company's unearned revenue figures.

The numbers, which reflect contracts that are signed but not entirely recognizable as revenue immediately, declined more sharply than he expected. That raises concerns that the company doesn't have enough major new products in the works to lure corporate customers into renewing long-term contracts.

Microsoft doesn't expect to ship a new version of its dominant Windows operating system until 2006, and the next big upgrade for its server product isn't expected until 2007.

"The company looks like it needs products,'' he said.Chief Financial Officer John Connors said Microsoft's quarterly performance was helped by strong personal computer shipments, which grew 10 percent in the quarter rather than 6 to 8 percent as the company had been projecting.

Server shipments also were slightly higher than expected, he said.

For the full 2005 fiscal year, Microsoft said it expects revenue to be between $38.9 billion and $39.2 billion, up slightly from a previous estimate of between $38.4 billion and $38.8 billion. Earnings per share are expected to be between $1.07 and $1.09, also up slightly from an earlier estimate of between $1.05 and $1.08. Both estimates include a stock-based compensation expense.

For the current fiscal second quarter, the company said it expects to have revenues of between $10.3 billion and $10.5 billion, and earnings per share of 28 cents per share, including stock-based compensation expenses.

Shares in Microsoft closed down 14 cents at $28.56 in trading Thursday on the Nasdaq Stock Market, more than $1 off its 52-week high of $29.89. The company reported earnings after the markets closed. In after-hours trading, the shares lost another 56 cents.Copyright 2004 The Associated Press. All rights reserved.The information contained in the AP News report may not be published, broadcast, rewritten or redistributed without the prior written authority of The Associated Press.