Associated Press
SEATTLE — Microsoft Corp. reported a 13 percent drop in net income for its second quarter Thursday, largely due to a hefty one-time charge for antitrust lawsuit expenses, but revenues rose 18 percent on the strength of new products.
For the quarter ended Dec. 31, Microsoft reported profits of $2.28 billion, or 41 cents a share, compared with net income of $2.62 billion, or 47 cents a share, in the same period last year.
The earnings included a one-time charge of $660 million, or about 8 cents a share, for estimated expenses in connection with a consumer class-action lawsuit.
Analysts polled by Thomson Financial/First Call expected earnings of 43 cents a share. Excluding the one-time charge, Microsoft beat those expectations.
Wall Street initially appeared unimpressed. Shares in Microsoft were up $1.99 to end the day at $69.86 in trading on the Nasdaq stock market, but fell sharply, by $1.52 to $68.34, in after-hours trading.
Brendan Barnicle, an analyst with Pacific Crest Securities, said Wall Street might have been hoping Microsoft would revise its earnings expectations upward and was disappointed to see guidance remain the same.
Scott McAdams, an analyst and president of McAdams Wright Ragen, agreed. "I think the street is trying to wrestle with what appeared to be a very strong quarter with what appears to be a diminutive look at the third quarter and fourth quarter," McAdams said.
However, both analysts cautioned that Microsoft is famously conservative and may well beat its own expectations.
Microsoft had said in November it would take a pretax charge of about $550 million in the second quarter to cover a proposed settlement to the antitrust case. It said that after taxes, it expected to incur a charge of about $375 million, or between 6 cents and 7 cents a share.
Although a Baltimore judge threw out the proposed settlement, Microsoft chief financial officer John Connors said in an interview Thursday that the company was still required to take that charge under accounting rules if there is a possibility a revised settlement could be reached.
Microsoft had revenue of $7.74 billion, compared with $6.55 billion a year earlier. Those results handily beat Microsoft’s earlier revenue expectations for the quarter.
Connors said the results were largely driven by Microsoft’s new operating system, Windows XP — which he said is selling at the rate of two copies per second — and Xbox, the game console launched in November.
McAdams said he was pleasantly surprised by Windows XP’s strong sales, which helped balance out what appeared to be slower sales in Microsoft’s enterprise software and services division.
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