July 20, 2006

Microsoft profit fell, leaded by investment in XBox outputs..

Microsoft Corp., the world's largest software maker, said fourth-quarter profit fell 24 percent after the company spent more on its Xbox video-game console. The company announced plans to buy back $40 billion in stock.

Net income fell to $2.83 billion, or 28 cents a share, from $3.7 billion, or 34 cents, a year earlier, the Redmond, Washington-based company said today in a statement distributed by PR Newswire. Excluding legal charges, profit was 31 cents, beating a 30-cent estimate by Rick Sherlund, an analyst at Goldman, Sachs & Co. Sales rose 16 percent to $11.8 billion.

Microsoft accelerated investments to get more Xbox consoles to market and catch up to Google Inc. in software programs that run over the Web. Chief Executive Officer Steve Ballmer's plans to continue that spending this fiscal year sent the company's shares down 14 percent during the quarter.

``Chasing Google is a waste of money,'' said Walter Price, who manages the Allianz RCM Global Technology Fund in San Francisco. He sold all of his Microsoft shares after an April announcement signaled spending on such initiatives would exceed analysts' estimates by about $2 billion. ``Users and advertisers have already made up their minds, and it's hard to change that.''

Microsoft shares this quarter had their worst performance since 2002. The stock, down 13 this year, fell 55 cents to $22.85 at 4 p.m. New York time in Nasdaq Stock Market composite trading.


Microsoft said profit for the year that began July 1 will be $1.43 to $1.47, an increase from an April forecast of $1.36 to $1.41. Sales will be $49.7 billion to $50.7 billion. The company had previously forecast sales of $49.5 billion to $50.5 billion. Analysts surveyed by Thomson Financial expect profit of $1.40 on sales of $49.8 billion.

Ballmer, 50, wants to remake Microsoft around Web services tied to the flagship Windows and Office products to compete with Mountain View, California-based Google and Salesforce.com Inc. He is also shipping more Xbox machines to take advantage of a delay in Sony Corp.'s next PlayStation.

The spending coincides with delays in Office 2007 and new Windows Vista operating system. Revenue from the older versions of both products has been growing less than 10 percent for the past two years as customers hold off purchases.

Earlier this month Microsoft was fined $357 million by European Union antitrust regulators for flouting an order to license Windows networking information to rivals.

Sales in the quarter were boosted by the increased supply of Xbox consoles and a new version of the SQL database server released last November. Goldman's Sherlund estimated server software sales rose 17 percent to $3.15 billion. Sales in the Home and Entertainment division, largely made up of Xbox, more than doubled to $1.22 billion, he estimated.