MSFT 2009 Q2 Earnings

Following the close of the July 23 trading session, the world’s largest software company, Microsoft Corp. (MSFT), confirmed that profits for the 4Q plunged, hurt mainly by weakness in the global PC and server markets. Yearly results showed a decline in annual sales, marking the first time in the company’s history in which that has happened.

For the recent period, Microsoft reported net earnings of $3.05B, or $0.34 per share, compared to the same period a year ago in which the company posted profits of $4.3B, or $0.46 per share. Results were affected by the company’s deferral of $276M in revenues related the recently announced Windows 7 Upgrade Options plan. The non-allocation of capital resulted in a $0.02 per share reduction in overall earnings.

The company also included additional charges, which involved a $193M legal charge, a $108M impairment charge related to investments and a $40M charge related to severance payments. In all, the charges amounted to an additional $0.02 per share reduction in quarterly earnings.

Microsoft’s sales during the quarter retreated as well, falling from $15.84B a year ago, to $13.1B, a drop in revenues of more than 17%. The decline in sales marked the second time in corporate history in which the company has posted year-over-year quarterly revenue declines. In the company’s 3Q, sales fell year-over-year for the first time.

Chief Financial Officer Christopher Liddell stated, "We still see conditions being challenging for the balance of this calendar year. At least sequentially, we are seeing a little bit of growth. While things are not necessarily getting better, they may have bottomed out.”

Analysts, on average, were anticipating quarterly earnings of $0.36 per share on overall revenues of $14.4B.

Delving deeper into the company’s report, Microsoft affirmed that Client revenues for the period fell 29% to $3.11B, due in large part to an ever-weakening PC sales market. The Client division, which manufactures the Windows operating system, saw revenues plunge more than 33% to $2.17B.

Revenues generated from the company’s Server and Tools unit slipped 6% in the quarter, totaling $3.51B, with operating earning falling 1.5% year-over-year to $1.35B. Microsoft’s Entertainment and Devices segment saw sales drop 25% to $1.19B, with an operating loss of $130M, down from the previous year’s loss of $171M.

As for the company’s Business unit, revenues for the 4Q came in at $4.56B, a nearly 14% decrease year-over-year. Microsoft’s Online services division recorded a quarterly decline as well, slipping from $837M a year ago to $731M, a 13% drop.

Liddell added, "We are a stronger company than we were a year ago. However, the economy continues to be challenging and we need to lift our game to another level in fiscal 2010."

For fiscal 2009, Microsoft recorded net income of $14.57B, or $1.62 per share, down from totals in 2008 of $17.68B, or $1.87 per share, a decrease in earnings of nearly 18% year-over-year.

Meanwhile, annual revenues slumped from $60.42B a year ago to $58.44B in 2009, a decrease in sales of more than 3%. Analysts within the industry were looking for Microsoft to book yearly earnings of $1.70 per share on total revenues of $59.66B.

Microsoft did not offer any financial guidance for fiscal 2010. However, the company did state that they are expecting operating expenses for the year to come in between $26.6B and $26.9B. In 2009, comparable expenses totaled $25.4B.

At the close of the July 23 trading session, shares of MSFT were up 3.1% at $25.56 per share. Following the company’s disappointing earnings release, the company’ stock nose-dived in the July 24 session, losing more than 8%, or $2.11, to end the week at $23.45 per share.

Over the past year, Microsoft’s stock has traded as high as $28.50 per share and as low as $14.87 per share. During the same time frame, MSFT shares have lost nearly 7% in market value.

By BetterTrades