Microsoft beats earnings expectations, readies new mobile devices

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Microsoft's quarterly earnings came in better than expected, though analysts had trimmed forecasts after Windows 8 was blamed for a downturn in PC sales.  FILE/ASSOCIATED PRESS
FILE/ASSOCIATED PRESS
Microsoft's quarterly earnings came in better than expected, though analysts had trimmed forecasts after Windows 8 was blamed for a downturn in PC sales.

NEW YORK — Microsoft is working with manufacturers to produce a line of small touchscreen devices powered by Windows, apparently intended to compete with 7-inch tablets such as the iPad Mini.

Peter Klein, Microsoft’s chief financial officer, told investors and analysts on a conference call Thursday that the devices will be available in coming months at competitive prices.

Microsoft Corp. is struggling to extend its software into smartphones and tablets as consumers turn away from PCs. Over the winter, it launched two larger tablets under the Surface brand. In October, it took a large stake in Barnes & Noble’s digital unit, which sells a line of entertainment-oriented 7-inch tablets under the Nook brand.

Microsoft reported financial results for its latest quarter Thursday, showing a deep – but largely expected – impact from the slowdown in global PC sales. Investors seemed to be expecting worse after some recent dismal reports on the PC slump.

The software company’s net income was $6.1 billion, or 72 cents per share, for the fiscal third quarter, which ended in March. That was up 18 percent from $5.1 billion, or 60 cents per share, a year ago, and beat the forecast of analysts polled by FactSet, at 68 cents. However, analysts have trimmed their forecasts quickly in the past few weeks – a month ago, they were expecting Microsoft to post 77 cents in earnings.

Last week, research firm IDC said PC sales fell 14 percent in the quarter, a record. It blamed in part Microsoft’s new Windows 8, which makes a clean break with the look and workings of old Windows in order to work better with touchscreens. Buyers seems daunted by the new interface, IDC said.

Revenue was $20.5 billion, up 18 percent from a year ago and matching analyst forecasts.

Both earnings and revenue were skewed by software accounting practices. Micro­soft offered a $15 upgrade to Windows 8 for Win­dows 7 PCs purchased June 2 or later. It wasn’t able to start recognizing the full value of the software licenses until these offers were redeemed or expired. In the latest quarter, Microsoft was able to recognize $1.1 billion of such deferred Windows revenue.

Stripping out the deferred revenue, overall revenue rose 8 percent, and revenue in the Windows division was flat with a year ago.

Stripping out deferred revenue and the effect of a $733 million fine levied by the European Commission, Microsoft earned 65 cents per share, up 8 percent from a year ago.

At the company’s largest division, Business, revenue rose 8 percent from a year ago to $6.3 billion. The increase was 5 percent adjusting for upgrade offers for the new Office suite.

The Redmond, Wash.-based company’s shares rose 79 cents, or 2.7 percent, to $29.58 in extended trading, after the release of the report.

Microsoft also said CFO Klein is leaving at the end of the fiscal year, in June. He has been in his current role for four years and at the company for 11 years. The company plans to name a new CFO from its finance team in the next few weeks.


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