Microsoft Beats Expectations for Earnings, Windows 7

TechFlash reports: Microsoft posted quarterly revenue of $12.92 billion and earnings of 40 cents per share—topping analysts' expectations by 8 cents in a development that the company attributed to stronger-than-expected Windows and Xbox sales, plus ongoing efforts to reduce internal costs. (The earnings were released one day after the debut of Windows 7, which has been well received.)

The result represented a decline of 25 percent in revenue and 17 percent in earnings. However, counting revenue deferred from the quarter because of the Windows 7 launch, the company says its revenue would have been $14.39 billion, down a more modest 4 percent, and earnings would have been 52 cents, up 8 percent.

The company sold the most Windows licenses it ever has sold in a quarter, said Bill Koefoed, Microsoft's general manager of investor relations, declining to provide the specific number. That result was primarily due to consumer demand, he said in an interview. Microsoft and its partners tried to sustain interest in PCs in advance of the Windows 7 launch through a "technology guarantee" program that gave buyers of Vista machines the right to upgrade to the new operating system.

That program and advance Windows 7 sales to PC makers are the reason for the deferral of about $1.5 billion in revenue from the quarter. Accounting rules say the company can't recognize the revenue until customers have an opportunity to actually get the final product they've been promised.

Koefoed said the company believes the quarter ended in June "was probably the bottom from a business spending perspective," with corporate spending stabilizing after that but remaining relatively soft.

Investors are reacting positively to the news, with Microsoft shares up noticeably, more than 7 percent, in early trading.