SEATTLE – Microsoft Corp. said Thursday that its quarterly earnings fell 38 percent as the company took big charges related to legal matters and for expenses related to stock-based compensation.
Microsoft reported earnings of $1.32 billion, or 12 cents a share, for its fiscal third quarter, which ended March 31. That compares with earnings of $2.14 billion, or 20 cents a share, in the same period a year earlier.
Revenue was $9.18 billion, up 17 percent from $7.84 billion in the same period of 2003.
The most recent quarterly earnings included a pretax charge of $2.53 billion, or 17 cents a share, for costs related to legal issues. During the quarter, the company reached a $1.6 billion settlement with Sun Microsystems Inc. and received a $610 million fine from the European Commission.
Another pretax charge of $748 million, or 5 cents a share, was for charges related to stock-based compensation.
Without the charges, the company would have had earnings of 34 cents a share. Comparable earnings for the year earlier would have been 26 cents a share without a one-time charge related to stock-based compensation. Microsoft switched last year to offering employees stock grants rather than stock options. Analysts polled by Thomson First Call had expected earnings of 29 cents a share.
Microsoft also reported a $326 million decline in unearned revenue – contracts that are signed but not listed as revenue immediately – from its fiscal second quarter.
The drop, which Microsoft had warned investors about, concerned analysts because it could indicate problems signing up customers for long-term contracts. But Microsoft chief financial officer John Connors said he expects those numbers to improve in the current quarter.
Connors said all of Microsoft’s business units met the company’s expectations for the quarter, boosted by overall increases in technology spending.
“I think we are seeing a pretty solid level of demand,” he said.
In particular, he said sales of the company’s Office software were boosted by stronger personal computer sales, while sales of its Xbox game console grew 30 percent over the previous year due in part to a price cut. The company also saw a 17 percent increase in server unit sales compared to a year earlier, he said.
For the current fourth quarter ending June 30, Microsoft said it now expects to have revenue of $8.9 billion to $9 billion. Earnings per share are expected to be about 23 cents, including a stock-based compensation expense of 5 cents. That revenue forecast is at the high end of analysts’ expectations, while the earnings per share numbers would slightly beat analysts’ expectations.
Connors said the company is not forecasting any more major charges related to legal issues at this point. But he would not comment directly on whether that means shareholders would soon see a piece of the company’s substantial cash hoard, which exceeds $50 billion.
For the nine months ended March 31, Microsoft reported earnings of $5.48 billion, or 51 cents a share, on revenue of $27.54 billion. That compares with earnings of $6.05 billion, or 56 cents a share, on revenue of $24.12 billion in the first nine months of the previous fiscal year.
Associated Press
Nick Gelotte of Kirkland examines a phone that runs Microsoft’s mobile operating system at the CompUSA outlet in Bellevue on Wednesday.
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