Microsoft meets estimates as Apple slumps

Microsoft, the largest software maker, reported fiscal second-quarter sales that met most analysts’ estimates as corporate customers continued to buy copies of Windows and Office software.

Sales rose 2.7% to $21.46bn (€16.04bn), meeting the average of analysts’ estimates compiled by Bloomberg. Net income declined to $6.38bn, or 76 cents a share, in the three months through Dec 31, from $6.62bn, or 78 cents, a year earlier, company said in a statement. That beat the 74 cents projected by analysts.

Even as personal-computer sales declined last year, businesses continued to upgrade their Windows systems — some of them from the 12-year-old Windows XP — and invest in Office productivity software. That helped make up for what Hewlett-Packard executive vice president Todd Bradley called a slower-than-expected initial quarter for Microsoft’s latest operating system, Windows 8.

“Right now investors are myopically focused on the Windows business,” said Brent Thill, an analyst at UBS in San Francisco. “It’s an important business but they forget about the other 75% of revenue.”

Demand from companies signing multiyear contracts translated into unearned revenue, a measure of future sales, of $19.8bn. That’s better than analysts’ average estimate of $19.1bn, according to data compiled by Bloomberg. During the quarter, Microsoft also recognised revenue from the Windows division that had been deferred from previous quarters, to account for coupons that let customers upgrade to the latest software versions.

Microsoft fell to $27.30 in extended trading after the report. Shares rose less than 1% to $27.63 at the close in New York. The stock declined 10% in the last three months of 2012, compared with a 1% decline for the Standard & Poor’s 500 Index.

Microsoft reiterated its operating expenses outlook for the fiscal year that began Jul 1 of $30.3bn to $30.9bn.

Microsoft sold 60m copies of Windows 8, a pace largely in line with the previous version, Windows chief financial officer Tami Reller said on Jan 8. That number includes both upgrades and copies computer makers bought to pre-install on their machines.

Corporate customers are also rushing to upgrade because Microsoft is ending support for Windows XP, which debuted in 2001.

“One of the biggest stories in 2013 is the business transition from Windows XP to Windows 7,” said Bob O’Donnell, an analyst at market research firm IDC Corp. “There are a staggering number of machines still running Windows XP. The IT guys have to pull the plug on those and upgrade, and most will do that by buying new machines.”

Meanwhile, Apple plunged the most in more than two years after posting the slowest profit growth since 2003 and the weakest sales increase in 14 quarters, fuelling concern that mounting costs and competition may curtail growth.

The shares dropped 12% to $453.06 at 2.34pm in New York, and earlier touched $450.66 for the biggest intraday decline since May 2010. Fiscal first-quarter profit rose less than 1% to $13.1bn, or $13.81 a share. Sales climbed 18% to $54.5bn, compared with 73% growth in the same period a year ago.

— Bloomberg