Microsoft Q1 Performance: Better Than Expected

Oct 23 2009, 10:33am CDT | by Robert Evans

Very recently I challenged a few of my chums to a game of basketball. Since none of us had ever played basketball before, it was expected to be a low-scoring game. A total of three goals were made, one of them by me. That's not very impressive (it's actually pretty sad) but it's a hell of a lot better than I expected to do.

There is a purpose to this story of my embarrassingly poor B-ball (is that what the kids call it these days?) skills. You see, Microsoft released their Q1 earnings today. They had a good quarter in the same way I played a good game of basketball. No one expected very much out of them, but somehow they managed to not hit themselves in the face whilst flailing and failing.

Microsoft's revenue was down 14% from Q1 of last year. Their operating income declined by 25% in the same period, while net income dropped 18% and diluted earnings per share was down by 17%. For any other company this would represent a disaster...but for 2009 Microsoft, this represents an improvement over predictions. Analysts expected the software giant's earnings to top off at 32 cents a share, but they managed to pull in 40 cents a share.

According to the Financial Times, Microsoft shares jumped 7.45% on the news. They credit Windows 7 with a large portion of their "success" this quarter. The company deferred almost 1.5 billion dollars in revenue from the new OS. If you include that in your calculations, they earned 52 cents/share this quarter, far above the analysts expectations.

Cost-cutting and the continuing success of the X-Box was cited as another major reason for Redmond's better-than-expected quarter. You might remember how Microsoft laid off 5,000 employees at the start of the year in order to reduce expenses. Apparently it worked, and it looks like Microsoft could be gearing up for more layoffs. The company stated today that they intend to "narrow their operating expenses" coming into 2010. There are a lot of things that could mean, but none of them are good for Microsoft employees.

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Robert Evans
The excitement about new smartphones, tablets and anything mobile drive Robert to unearth the latest rumors and developments in this fast moving space. He adopted 4G as soon as it become available and knows where the mobile market is going.
Robert can be contacted directly at robert@i4u.com.