Microsoft earnings up; Vista and Office'doing well'

SEATTLE - Strong sales of long-term contracts to corporate customers helped Microsoft (MSFT) offset a billion-dollar charge to extend warranties on faulty Xbox 360 gaming consoles.

The software giant reported that profit grew 7.3% in its fiscal fourth quarter. Meanwhile, revenue for its fiscal year topped $50 billion for the first time.

Microsoft posted quarterly net income of $3.0 billion, or 31 cents a share, on sales of $13.4 billion, meeting analyst expectations. In the year-ago quarter, it had net income of $2.8 billion, or 28 cents a share, on sales of $11.8 billion.

For fiscal 2007, Microsoft earned $14.1 billion, or $1.42 a share, on record sales of $51.1 billion.

Charly Tracy, Microsoft senior finance manager, attributed robust sales growth to "strong execution by our partners and sales force."

Windows PC software, Windows server software and Office saw revenue increases of 14%, 15% and 19%, respectively, compared with the year-earlier period, Tracy says.

Any questions about corporate acceptance of Windows Vista and Office 2007, launched in January, were obliterated. Unearned revenue, a measure of the future value of corporate contracts, rose 16% to $10.8 billion, vs. the year-earlier period. "It means Vista and Office 2007 are doing well," says Sid Parakh, tech stocks analyst at McAdams Wright Ragen.

Strong contract sales bode well for Microsoft's plans to roll out server, database and communications software that tie into Vista and Office 2007 in coming months.

"We're having very good success re-signing contracts that are coming up for expiration," says Tracy, adding that corporations are buying Vista and Office in anticipation of the new server programs.

Microsoft announced July 5 that it would take a $1.1 billion charge to extend warranties on Xbox 360 consoles that were malfunctioning at a high rate. It had sold 11.6 million consoles as of June 30, shy of its forecast of 12 million.

What's more, Peter Moore, who oversaw the Xbox business, abruptly resigned this week to join game maker Electronic Arts.

But Tracy said the worst is behind Xbox. "We've taken the charge and done the right thing for the customer," he says. "Now it's all about the great game lineup we've got going into next holiday season."

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