Microsoft set to launch £10.8bn share buyback

Published on Friday 21 July 2006 11:49

SOFTWARE giant Microsoft today reported a slight rise in annual profit at the same time as it revealed plans to buy back another £10.8 billion of its shares next month.

In the first update since co-founder billionaire Bill Gates announced he was stepping down from the daily running of Microsoft from 2008 to focus on charitable ventures, the company said profit over the past year came in at 6.82bn, compared with 6.6bn the year before, on revenues up 11 per cent at 24bn.

However, despite a 16 per cent jump in sales over the final-quarter to 6.38bn, profit dipped to 1.53bn from 2bn partly due to legal costs associated with a recent 191 million anti-competition fine meted out by the European Commission.

The company was also forced to delay the launch of its Windows operating system, called Vista, to next January. Nevertheless, the world's largest software maker was bullish about its forecast for the current trading year, seeing revenues of up to 27.4bn and operating profit of 10.5bn on the back of new product launches.

"Our upcoming launches of Windows Vista, Microsoft Office 2007, Exchange Server 2007 and other key products position us to continue to deliver strong revenue growth in 2007," said chief financial officer Chris Liddell.

Windows and Office products account for more than half of Microsoft's sales and most of its profits.

Washington-based Microsoft said it planned to repurchase eight per cent of its shares in issue - around 10.8bn worth - in August, on top of the 16.2bn of stock it has already bought back over the past year. The US group also plans to repurchase up to another 10.8bn of shares over the next five years, it said.

Companies often buy back shares to reduce the amount of stock in circulation, which in turn increases earnings per share in future years. "With our share repurchase programmes, we reaffirm our confidence and optimism in the long-term future of the company," Mr Liddell said.

Microsoft's shares have underperformed every major US stock index since the start of 2003.

"This buyback is a big deal," said Richard Earnest, portfolio manger for HighMark Capital Management.

Andy Miedler, an analyst with Edward Jones, said: "We think this gives investors confidence in Microsoft's future."

Mr Liddell said the company decided on the buyback plans because it had excess cash on hand.

Earlier this week, technology bellwethers Yahoo! and Intel delivered disappointing earnings results, triggering some investor concerns about a sector-wide slump.

"Given the expectations after the first few companies reported, this one [Microsoft] wasn't that bad. It had the potential to be worse than it was," said Romeo Dator, portfolio manager at US Global Investors.

Microsoft said it shipped five million Xbox 360 consoles since the game machine's November launch and forecast that figure to rise to between 13 million to 15 million units by June 2007.