Microsoft tops Wall Street estimates

SEATTLE – Microsoft Corp. pleased investors Thursday by beating Wall Street estimates for the fiscal fourth quarter and announcing plans to buy back at least $20 billion worth of shares.

The results and repurchase plan sent Microsoft shares up 5.5 percent or $1.26, to $24.11 in after-hours trading. Microsoft shares had fallen 55 cents or 2.4 percent to close at $22.85 Thursday on the Nasdaq Stock Market ahead of the income report.

“We think this gives investors confidence in Microsoft’s future,” said Andy Miedler, an analyst with Edward Jones.

For the three months ended June 30, the software maker reported earnings of $2.83 billion, or 28 cents per share. That was a 24 percent drop from earnings of $3.7 billion, or 34 cents per share in the same period last year.

Revenue for the quarter was $11.8 billion, a 16 percent increase over $10.16 billion in the same period a year earlier.

The results included one-time legal charges of 3 cents per share. In the year-earlier period, Microsoft had legal expenses of 5 cents per share plus tax benefits of 9 cents per share.

Without the charge, Redmond-based Microsoft would have earned 31 cents per share in the most recent quarter.

Analysts polled by Thomson Financial were expecting earnings for the three-month period of 30 cents per share on revenue of $11.63 billion.

Those expectations were reduced after Microsoft said in April that it expected earnings for the fiscal fourth quarter and 2007 fiscal year to be lower than many had previously expected. The company blamed the change on a decision to significantly boost research and development spending in areas where it is not dominant.

Microsoft also said Thursday that it plans to repurchase as much as $20 billion worth of shares by Aug. 17 in a tender offer.

Under its plan, the company said it will take offers to buy shares within the range of $22.50 and $24.75, in a tactic similar to a reverse auction. Based on the offers it receives, the company will come up with a strike price that allows it to buy $20 billion worth of the shares.

Microsoft won’t buy shares below the price a shareholder offered to sell them for, and in some cases could pay more than the price a shareholder offers.

The company said its board also had authorized it to spend as much as $20 billion on more traditional stock repurchases by June 2011. And it said it had already completed a previously announced $30 billion stock repurchase program.

Microsoft Chief Financial Officer Chris Liddell said the company decided on the buyback plans because it saw that it had excess cash on hand that it didn’t think it would immediately need for things like legal expenses and acquisitions.

Microsoft recorded $34.16 billion in cash and short-term investments as of June 30.

Analyst David Garrity with Dinosaur Securities said Microsoft may have chosen the more immediate tender offer because some companies have been accused of using stock repurchase announcements to mask stock option grants, or of making big stock repurchase promises that never get fulfilled.

He said this plans shows, “We’re buying back the stock and we mean it.”

Still, while the tender offer is encouraging, Garrity said the company still needs to prove to investors that it can effectively battle online and other competitors who appear increasingly to be encroaching on its Windows and Office franchises.

“You can still make the argument that Microsoft is a tech conglomerate whose main franchise remains substantially under attack from others,” he said.

For the full 2006 fiscal year, Microsoft reported earnings of $12.6 billion or $1.20 per share on revenue of $44.28 billion. That compares with earnings in the previous fiscal year of $12.25 billion or $1.13 per share on revenue of $39.79 billion.

For the current fiscal first quarter ending in September, Microsoft said it expects to earn between 30 cents and 32 cents per share, on revenue of between $10.6 billion and $10.8 billion.

For the 2007 fiscal year, the company forecast earnings of between $1.43 and $1.47 per share, on revenue of between $49.7 billion and $50.7 billion. That earnings guidance was higher than previously forecast, but Liddell said in an interview that the change was mainly due to the planned $20 billion tender offer.

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