Microsoft's Quarterly Profits Surge 24% Despite Disappointment Over Xbox Sales Forecasts

Strategic Insights -

American software giant Microsoft reported a 24 per cent surge in quarterly profits, with net income reaching around GBP 1.76 billion. The company's revenue increased to GBP 5.46 billion in the first quarter to October, with strong sales of its core Windows operating system driving the growth. However, Wall Street analysts were disappointed by Microsoft's revenue forecasts for the second quarter, fearing slower sales of its Xbox games consoles. The company's shares fell 1.5 per cent in after-hours trade.

Key Takeaways:

  • Microsoft's quarterly profits surged 24 per cent to around GBP 1.76 billion, driven by strong sales of its core Windows operating system.
  • The company's net income for the first quarter to October was around GBP 1.76 billion, compared with GBP 1.42 billion a year ago.
  • Microsoft's revenue increased to around GBP 5.46 billion in the first quarter to October, with the core Windows operating system sales driving the growth.
  • Analysts were disappointed by Microsoft's revenue forecasts for the second quarter, fearing slower sales of its Xbox games consoles.
  • Microsoft shares fell 1.5 per cent in after-hours trade in response to the disappointing forecasts.
  • The company expects PC sales to remain buoyant, with 9-11 per cent growth in the financial year to June 2006.
  • Microsoft forecast sales of between GBP 6.67 billion and GBP 6.73 billion in the quarter to December, lower than the estimated GBP 6.87 billion pencilled in by analysts.
  • The company is preparing to launch its latest version of the video games console, the Xbox 360, on November 22, with a predicted shipment of 4.5-5.5 million consoles during the fiscal year to June 2006.
  • Analysts said Xbox sales would indicate a manufacturing constraint, with Michael Pachter predicting shipping of six million consoles by June 2006.
  • Microsoft's chief financial officer, Chris Liddell, said the company's aim is for a more "gradual ramp" of sales of the new video game units, to make sure that supply remains constant and does not dry up early.

Statistics:

  • 24% increase in quarterly profits
  • GBP 1.76 billion quarterly profits
  • 9-11% growth in PC sales in the financial year to June 2006
  • GBP 6.67-6.73 billion forecast sales for the quarter to December
  • 4.5-5.5 million Xbox 360 consoles predicted to be shipped during the fiscal year to June 2006
  • 6 million consoles predicted to be shipped by June 2006, according to analyst Michael Pachter

Sources:

  • [The Guardian]
  • [Microsoft press release]
  • [Wall Street Journal]
  • [Solaris Asset Management]
  • [Wedbush Morgan Securities]
  • [Financial Times]