Windows 7 does the magic for Microsoft as profits leap 35%

Published on Friday 23 April 2010 21:37

MICROSOFT has topped Wall Street forecasts with a 35 per cent jump in quarterly profit, boosted by sales of its new Windows 7 operating system.

However, shares in the software giant slipped as investors expected the company to benefit more from a recovering technology sector.

Sales only narrowly beat analysts' average estimates, suggesting that the recovery is not yet in full swing for the world's largest software firm.

Technology sector leaders Intel and Apple smashed Wall Street estimates in recent weeks, elevating expectations that Microsoft would do the same.

But Oracle, IBM and Google posted strong results only to see their shares fall.

Toan Tran, an analyst at Morningstar, said: "Maybe people's expectations were a little bit higher than Microsoft's numbers. Tech earnings have been pretty strong and, with lots of strength in the PC market, the stock has come up quite a bit recently, so it might be people having too high expectations."

Worldwide PC spending is projected to recover from recent doldrums and rise 12 per cent to $245 billion (160bn) in 2010, tech research firm Gartner says.

The increase promises to be a huge – if not immediate – boost to Microsoft, which provides the operating system for more than 90 per cent of the world's computers.

Andrew Miedler, an analyst at Edward Jones, said: "The real benefit for Microsoft will be not necessarily when consumers buy PCs but when businesses step up to the plate and start buying PCs, 10,000, 20,000 and 30,000 at a time. That's when it really starts helping Microsoft more, because business PC purchases typically bring more profitability for Microsoft, because they get a more professional version of the product."

Microsoft reported a net profit of $4bn for the three months to 31 March, compared with 3bn a year ago.

Quarterly revenue rose 6 per cent to $14.5bn, beating analysts' average estimate of $14.4bn.

Peter Klein, Microsoft's chief financial officer, said: "In the third quarter, we saw a return to growth in businesses' hardware spending – both PCs and servers – which was different than what we've seen over the last three or four quarters."

The growth in profit was powered by the unit that makes Windows, posting a 35 per cent increase in profit to $3bn in the quarter, boosted by the hot-selling Windows 7, which was released in October.

Microsoft's business division, which makes the Office suite of software, saw profit fall 5 per cent to $2.6bn. A new version of Office is due next month.