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Thursday, October 23, 2008
Microsoft Posts 2% Increase in Net Income
Donna Fuscaldo
FOXBusiness
Microsoft (MSFT), the world’s largest software maker posted a 2% increase in net income for its fiscal first quarter, buoyed by recurring sales of software but tempered in its outlook for the fiscal second quarter and remainder of the year.
The Redmond, Wash., software company results beat Wall Street expectations, which sent the stock up in after-hours trading Thursday. Recently, shares of Microsoft were trading up 5.4% to $22.63. The stock finished the regular trading session at $22.32.
In the first quarter, Microsoft reported net income of $4.37 billion, or 48 cents a share, compared with $4.29 billion, or 46 cents a share, in the year-ago period. Revenue increased 9% to $15.06 billion. Analysts, according to Thomson Reuters, had expected Microsoft to weigh in with earnings of 47 cents a share and sales of $14.8 billion.
Microsoft said multiyear annuity sales grew more than 20% during the quarter from its Client, Microsoft Business Division and Server and Tools.
Looking out to its fiscal second quarter and full year targets, Microsoft tempered its expectations citing the uncertain economic climate. For its fiscal second quarter, Microsoft is targeting earnings of 51 to 53 cents a share and revenue of $17.3 billion to $17.8 billion. Analysts had expected Microsoft to weigh in with revenue of $17.96 billion and earnings of 55 cents a share. For the full year Microsoft is targeting earnings of $2.00 to $2.10 a share and revenue between $64.9 billion and $66.5 billion. The Thomson Reuters consensus stands at earnings of $2.11 a share and revenue of $66.4 billion.
Microsoft said in a press release that the company expects the economic slowdown to continue and that the company is focused on working with customers to provide products at the lowest total overall cost of ownership, increasing its focus on expense management and targeting investment into the highest priority strategic opportunities.
Analysts had largely expected Microsoft to lower its outlook for the remainder of the year because of the slowing economy and credit market malaise. Microsoft plays in both the consumer and corporate markets where less consumer spending dollars and tight credit markets are expected to crimp sales.
Last week, market-research firm Gartner forecast global information technology spending to increase 2.3% in 2009, lower than its previous target of 5.8% due to the financial crisis. Gartner said businesses would cut back hardware, software, telecom and services budges as the credit woes increase thanks largely to emerging markets. Gartner is forecasting mostly pushed up by emerging markets. The firm expects the U.S. to be flat, and Europe to be slightly negative. Gartner said the U.S. and Western Europe will be the hardest hit.
In a press release, Microsoft Chief Financial Officer Chris Liddell said “we feel extremely good about our relative competitive position and our ability to continue outgrowing IT spend. We believe our exceptionally strong cash flow, product pipeline and financial strength will allow us to weather economic conditions well."
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Some mutual funds want you to pay for the privilege of them (or your investment adviser) taking your money to invest. It's called a load, and it works like a cover charge to get into a nightclub. Luckily, there are such things as no-load funds. As the name implies, shares of these funds are sold without a fee paid to a broker or investment advisor.
The entire amount you invest in no-load funds goes to work for your returns. On the other hand, with load funds, right off the bat you're charged commission (not to mention other fees incurred over the life of the investment). Let's say, for example, you invest $25,000 into a load fund that charges a 5% commission. This costs you $1,250 off the top, bringing your actual investment down to only $23,750.
The often-cited horse race analogy argues against investing in load funds. Here's the logic behind it: Would you place a bet on a horse that had to start a race 200 yards behind the others? Well, maybe you would if you got a tip from a sketchy, trench coat-clad man in a dark alley. However, under most circumstances, it's not smart to put your money on that handicapped horse.
But some argue that at times that man in the trench coat (aka your broker) knows more about the horses than you do, and has a better shot at picking a winner. Also, sometimes these fees are unavoidable because some funds are available only through investment advisers.
Cost-benefit analysis can help determine when a load fund is worth it (in other words, when it will score you a load) and when it is better to "do it yourself" and avoid the fees. Load-fund fees range depending on share class and can cover a variety of costs, such as paper work and fund management.
