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conference date: April 26, 2007 @ 2:30 PM PT
for quarter ending: March 31, 2007 (3rd fiscal quarter 2007)
Overview: Surprisingly good quarter. Blew past estimated revenues.
Basic data:
Revenues were $14.4 billion, up 15% sequentially and up 32% from the prior year.
Net income was $4.93 billion, up 87% sequentially and up 65% from the prior year.
Earnings per share were $0.50, up 72% from year-earlier.
Cash and short term investments were $28 billion.
Guidance:
For June 2007 quarter revenue to be $13.1 to $13.4 billion. Operating income $5.0 to $5.2 billion. EPS $0.37 to $0.39.
For fiscal 2008 (ending June 30, 2008), preliminary guidance is revenues of $56.5 to $57.5 billion. Operating income of $22.0 to $22.5 billion. EPS $1.68 to $1.72.
Conference Highlights:
Very pleased with themselve.
Results include $1.67 billion in revenue, $1.14 billion in net income, and $0.12 EPS that were deferred related to the Vista and Office 2007 technology guarantee programs.
Net cash from operations was $7.29 billion. $7.72 billion was used for share buybacks ($6.9 billion) and dividends ($0.9 billion).
Inventories were up to $1.75 billion.
Revenues by segment were: Client $5.3 billion; Server and Tools $2.75 billion; Online Services $0.6 billion; Business $4.8 billion; Entertainment and Devices $0.9 billion. Both Online Services and Entertainment segments showed operating losses.
Operating expenses were $7.8 billion, up from $7.0 billion year-earlier.
Computer shipments surprised them on the upside. Contracted-not-built balances grew. Bookings in core divisions grew 25%.
2% of revenue growth was due to foreign exchange rates.
OEM revenues grew 24%, faster than PC sales growth. Making progress in lowering percentage of unlicensed PCs.
Advertising revenue grew 23%. But access revenue declined. Monetizing more effectively with AdCenter. Display ad grew at a healthy pace.
21% decrease in entertainment segment due to expected lower XBox 360 sales. Mobile devices revenues grew 30%.
10 to 12% overall PC market growth expected for next quarter.
Client organic revenue growth will be in line or slightly above single digit growth in PC market in 2008.
Q&A:
Premium Vista mix? Coming in higher than expectations. Expects trend to continue.
Vista/XP mix? Was 85% Vista, 15% XP. Vista is being adopted faster than XP was. Because of extensive Beta testing is more ready for businesses that XP was.
Online Services color? Much better quarter for ad revenue and guiding to 20% increase in next quarter. Mainly from AdCenter coming in. Strategy is to continue to invest in this business. Hotmail and Messenger account growth is good, but we don't monetize that. Aims to continue to improve search relevancy. Will also support XBox live and Office live.
Office underlying strength? Very good retail sales. For Q4 expect very good growth numbers. 20% year-on-year is normalized growth in this sector. CRM hit milestone of 10,000 customers; it is a great value proposition.
Halo 3 impact? 500,000 XBox 260 consoles sold through, so inventories came down to normal levels. Next year is targetting profitability. Halo 3 will have a positive impact on console sales and will generate several hundred million dollars of revenues next year.
Operating margins FY 2008? Guidance is to a slight margin improvement. Still in investment mode for online services. With revenues up 11 to 12% and maintain margin structure, that is good for a company our size.
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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. Before making or terminating an investment you should always verify any factual basis of your decision.
Copyright 2007 William P. Meyers
