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Thursday, October 26, 2006

As Predicted, Microsoft Earnings Were Just Noise

Microsoft initially fell almost 1.5% after the company beat earnings, but lowered guidance for the current quarter. The shares are now only down about 0.4% in after-hours activity. The report showed $0.35 EPS vs $0.31e, but as we noted earlier the backward quarter should have been irrelevant and you have to look past even the current quarter because of the issues. The company lowered guidance for the current quarter, but that is also something that was not a huge shocker if you realize that the company could have been up or down by a significant amount if you take the trifecta of Zune, Vista, and Xbox360 competition into play.

The important issues are as follows:

Kevin Turner, chief operating officer at Microsoft said, "As we look to the upcoming releases of Windows Vista, the 2007 Microsoft Office system and Exchange Server 2007, we are excited about these products and believe they will deliver unprecedented levels of business value to our customers."

Next quarter guidance: Revenue is expected to be in the range of $11.8 billion to $12.4 billion, which reflects approximately $1.5 billion of revenue deferrals that will be captured in the fiscal third quarter as noted below. Operating income is expected to be in the range of $2.9 billion to $3.1 billion, which reflects approximately $1.5 billion of deferrals noted below. Diluted EPS expected to be $0.22 to $0.24, which includes an $0.11 per share impact for deferrals noted below. Forget that quarter, look out further.

Full-year guidance: Revenue is expected to be in the range of $50.0 billion to $50.9 billion. Operating income is expected to be in the range of $19.1 billion to $19.5 billion. Diluted earnings per share are expected to be in the range of $1.43 to $1.46. The estimates are $1.44 EPS and $50.25 Billion in revenues. This is actually in-line, but what do you do if you think the company was being conservative.

They now have sold 6 million Xbox 360 units.

Whitney Tilson of the Tilson Focus Fund just said the same thing on a CNBC interview that we noted earlier about this being a transition quarter and that the main products have not even hit the market yet.

The media isn't really treating this properly because they don't know how to interpret events as well, or at least that is my opinion. So now the real issue is going to boil down to the street fighting over if the company is backing off strong opinions or if it was just being conservative.

Jon C. Ogg
October 26, 2006
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