Analyst Conference Summary

Microsoft
MSFT

conference date: July 19, 2007 @ 2:30 PM Pacific Time
for quarter ending: June 30, 2007 (Q4 fiscal 2007)

I own this stock
Forward-looking statements

Overview: About as expected. Increased guidance for fiscal 2008.

Basic data:

Revenues were $13.37 billion, down 7% sequentially but up 13% from year-earlier.

Net income was $3.035 billion, up 7% from $2.83 billion year-earlier.

EPS were $0.31, including $0.08 Xbox 360 warranty charges.

Cash and equivalents and short-term investments totalled $23.4 billion.

Guidance:

For fiscal Q1 2008 (quarter ending September 30, 2007), revenue expected between $12.4 and $12.6 billion (up 15 to 17% y/y). Operating income between $5.0 and $5.2 billion. Diluted EPS $0.38 to $0.40.

For full fiscal 2008 revenue expected between $56.8 and $57.8 billion (up 11 to 13% y/y). Operating income between $22.2 and $22.7 billion, and diluted EPS between $1.69 and $1.73.

This guidance does not include costs for acquisition of aQuantive, which should not have a significant impact on earnings. Assumes 9 to 11% PC unit growth.

Gave extensive guidance by segment. Warned of risks to this type of projection.

Conference Highlights:

For the full fiscal year revenues were $51.12 billion, up 15% over prior year. Non-GAAP EPS was $1.49, up 17% from year-earlier. $31 billion was spent on share buy backs and dividend distributions.

Cost of revenue was $3.2 billion; R&D $1.9 billion; Sales & marketing $3.2 billion, G&A $0.87 billion, for total operating expenses of $9.4 billion. 29% effective tax rate.

Investment and other income was $295 million. $1.25 billion was provided for taxes.

Accounts receivable increased to $11.3 billion. Inventories decreased to $1.2 billion. Accounts payable increased to $3.2 billion.

Cash flow from operations was $4.4 billion. Net cash from investing was $1.1 billion. $7.2 billion paid for stock repurchases in quarter.

Client segment revenue was $3.8 billion, up 14% annual. Strong OEM revenue growth of 15% with 72% premium mix.

Server and Tools segment revenue was $3.1 billion, up 15% annual. SQL Server continues double digit revenue growth.

Online services revenue was $0.7 billion, up 19% annual. 33% increase in online ad revenue growth. Display ad revenue increased page views and value per view.

Microsoft Business Division revenue was $4.6 billion, up 19% annual. Dynamic CRM did very well.

Entertainment and Devices Division revenue wsa $1.16 billion, down 10% annual, consistent with guidance due to lower Xbox 360 sales. September 26th release date for Halo 3. Windows Mobile operating system did well. Xbox charge will be about $1 billion, about half to cover existing warranty and half to cover extension to 3 years.

Demand was strong across all divisions and customers. Enterprise billings grew over 25% non-annuity licensing over 15%. Core bookings increased over 20%.

2008 will be an important launch year for company, including security and business applications and a server and SQL server refresh.

11 to 13% growth in underlying PC market. Consumer increasing faster than business.

Contracted-not-built increased to over $10 billion.

Changing foreign exchange rates added about 2% point to overall revenue growth.

February 2008 should see launch of SQL Server, Windows Server, Visual Studio.

Q&A:

Online Services sustainability? Quarter had 33% increase in ad revenue, good search volumes and rates, display was healthy. 2008 guidance is increase of 20%, which is a good result, and better is possible. Increase is result of new product, but did not build a lot of that into next year.

Premium mix going forward? Expects current level is sustainable into 2008. Consumer growth in PCs to be higher than business, so some shift from that.

Vista adoption? Happy with rate so far. Not really a driver. Business uptake will be driven by their needs independent of when service pack comes out.

Entertainment and device guidance? It is a seasonal business, so you could see swings in profitability. Demand is hard to anticipate.

Enterprise strength in emerging markets off small bases.

Client guidance for 2008? Start with PC unit growth rates of 9 to 11%. OEM units can grow at top end of range because of progress against piracy. Client revenue overall as well.

Longhorn? Still expected in 2nd half of calendar 2007.

XBox 360 charge color? Had a declining inventory this year. Write-down component is non-cash. There is no direct linkage with flashing red lights. Believes some inventory will not be able to be sold as repaired units.

Headcount? Rate of growth is slowing. Now about 10%, which is slower than revenue growth.

Server and tools was a bit light because of annuity mix. So recognition of revenue issue.

Business adoption of Vista? Expects 78% Vista mix next year, a bit lower than prior assumption. Could there be an upside to business adoption for 2008, yes.

Business premium mix assumption? Down slightly.

OpenIcon Analyst Conference Summaries Main Page

Microsoft Investor Relations page

 

Search

More Analyst Conference Pages:

 
 ADBE
 AKAM
 ALTR
 AMAT
 AMD
 AMGN
 ANSV
 ATML
 BIIB
 CELG
 CHINA
 CSCO
 DELL
 DNA
 DNDN
 GILD
 GOOG
 HILL
 HPQ
 IBM
 INTC
 JNPR
 LLTC
 MCHP
 MOT
 MRVL
 MSFT
 MXIM
 NAPS
 NOVL
 NVDA
 ORCL
 ONXX
 RACK
 RHT
 STMP
 SUNW
 TXN
 XLNX
 YHOO

Disclaimer: Our analyst summaries may include both our condensations of statements made by company representatives and our own analysis. They are not covered by any warranty. We cannot guarantee anything said by company representatives is true. We try not to make errors, but it is possible. Before making or terminating an investment you should always verify any factual basis of your decision.

Copyright 2007 William P. Meyers