The Headlines once again have given me that warm and fuzzy feeling all over.
**Microsoft Blows Past Expectations for 1st Quarter
**Microsoft Announces Record First Quarter Revenue
**Microsoft Profits More Than Double
It’s a pity that they paint such an inaccurate picture. The street had been expecting Microsoft Corp.'s to post EPS of $0.43 on revenues of 7.1 Billion, fiscal first-quarter results MSFT utilized some interesting accounting gimmicks, and I will not be 100% sure until I see the 10K…however it appears that MSFT marked up it’s XP system as they want the public to believe there was a shift to higher-priced versions of its Windows operating system, you see MSFT recognizes revenues as systems are shipped to OEM and resellers. According to the releases MSFT guides up the December quarter to $8.5-8.6 billion in pro forma revenues, above the consensus of $8.45 billion however the guides EPS to $0.45-0.46 vs. consensus current consensus of $0.50. This makes very little sense, unless there are some significant write offs in the pipeline.
I’m not the brightest bulb in the closet, but they reported EPS of $0.50 on earnings of $7.75 billion for the quarter, now they say they intend to grow revenues by 750-850 million next quarter but that EPS will $0.04 -0.05 lighter…this is a RED Flag if you ask me. MSFT also played an other accounting trick this quarter…they used price cuts for the Xbox game console which increased their write off…as the X-Box is a losing venture…MSFT makes revenues from games/licensing fees not the console.
There was no mention at all of the impact on regarding the cancellation of the Extraterritorial Income Exclusion Act due to a World Trade Organization ruling recently. It is likely to reduce export subsidy income for several large U.S. companies including MSFT, which reportedly benefited by $0.06 worth of EPS from ETI in FY02; MSFT could see a material impact of $0.07 -0.08 this year and an impact to cash flow by $400-415 million going forward. I tried to get in on the conference call and ask this question…however they would not accept my question…(I guess I need to belong to top 10-pack of hypsters/shills)
During the Conference call:
"Results for the first quarter were exceptionally strong, exceeding our expectations," said John Conner, the company's CFO, who cited quicker than expected customer adoption of its new long-term licensing programs. The MSFT CFO said on the conference call that the "tech spending environment remains tough".
Microsoft, which has a monopoly on the desktop software market through its Windows and Office franchises, recently moved many customers to new, multiyear software- licensing plans, helping to squirrel away billions in revenue to recognize during future quarters. The predictability of that long-term revenue is really a good corporate move on MSFT’s part…as it gives it a leg up on competitors, many of whom are still struggling financially from the downturn in the PC market. Microsoft has been able to use its market heft to steer clear of many of the problems plaguing other technology companies. However many states and the Government are looking into this recent practice as many of MSFT’s customers have filed complaints. This was a strong arm tactic to increase revenues a one time last chance sale of software licenses. Their old license plan changed as of June 30th and there was a rush to buy software at the old terms. The key here folks is that this is not a repeatable event.
Microsoft Corp. reported revenue of $7.75 billion for the quarter ended September 30th, 2002, a 26% increase over revenue of $6.13 billion for the same quarter last year.
Operating income for the first quarter was $4.05 billion, compared to $2.90 billion in the same period last year.
Net income and diluted earnings per share for the first quarter of fiscal year 2003 were $2.73 billion and $0.50, which included an after-tax charge for investment impairments of $291 million or $0.05. For the same period of the previous year, net income and diluted earnings per share were $1.28 billion and $0.23, which included an after-tax charge for investment impairments of $1.22 billion.
First Quarter 2001…Microsoft Corp. reported revenue of $6.13 billion for the quarter ended September 30th, 2001, a 6% increase over the $5.77 billion reported in the prior year. Operating income totaled $2.90 billion compared to $2.78 billion in the prior year. Net income for the quarter was $1.28 billion including a $1.24 billion after-tax charge related to the impairment of certain publicly traded and private equity securities, predominantly in the cable and telecommunications industries. This charge is reflected in the $980 million investment loss reported this quarter. Diluted earnings per share for the September 2001 quarter were $0.23, including a $0.20 charge for net recognized investment losses which includes the impairment charge noted above. So EPS was $0.43 before dilution
Business Outlook
**Management offers the following guidance for the quarter ending Dec. 31, 2002:
**Revenue is expected to be in the range of $8.5 billion and $8.6 billion.
**Operating income is expected to be in the range of $3.2 billion and $3.3 billion.
**Diluted earnings per share is expected to be either $0.45 or $0.46. (Red Flag #1)
Management offers the following guidance for the full fiscal year ending June 30, 2003:
**Revenue is expected to be in the range of $32.2 billion and $32.6 billion.
**Operating income is expected to be in the range of $14.1 billion and $14.4 billion.
**Diluted earnings per share is expected to be in the range of $1.89 and $1.95.
Best of Luck
Steve
AI
