Microsoft Reports Strong 2Q Earnings

by , 1:40 PM EST, January 25th, 2008

Those who expected Microsoft to fall prey to the tech slowdown didn't get what they expected when Microsoft reported a 79 percent jump in profits and a 30 percent rise in sales, according to BusinessWeek on Friday.

The results reported on Thursday exceeded analyst expectations and showed strength in all areas. Profits were up 79 percent to US$4.71B and total revenue was up 30 percent to US$16.37B. These numbers were about ten percent above analysts expectations.

Moreover, the previous quarter was a tough act to follow when Microsoft reported revenue $1.3B above expectations, driving the stock to a five year high.

Aaron Ricadela wrote for BW that while analysts don't think Microsoft is immune to a further worsening of the economy, the stock could be a safe haven for now. "Everyone's so concerned about the macro condition, and software is typically a lagging indicator," said Brent Thill, director of software research at Citigroup, "This is the biggest single issue for the stock right now," said Mr. Thill who believes MSFT will hit US$41 within a year.

Analysts have provided various reasons for Microsoft's current strength. The coming SP1 for Vista could accelerate its adoption in the enterprise. Microsoft is also ready to launch new versions of its Windows Server, SQL Server, and development tools in February. In addition, Microsoft has US$21B in cash, no long term debt, and, like Apple's accounting for the iPhone, $12.2B in yet unearned revenue from long term licensing deals.

Like any company in the high tech sector, Microsoft could reveal some vulnerabilities and become a victim of discretionary funding cuts. "For now, Microsoft's most important products continue to clean up, and the company can afford to pour money into chasing Google and other rivals in the online software business. That's making its stock look like a sound bet in uncertain times," Mr. Ricadela concluded.