With Earnings Up 23%, Microsoft Cites 'Halo' Effect

Oct 26, 05:00 AM

Current Headlines: By Jon Swartz

Microsoft registered a sharp rise in financial results Thursday, propelled by brisk sales of its Vista operating system, Office 2007 software suite and Halo 3 video game.

The software giant said earnings increased 23% in its fiscal first quarter, to $4.3 billion, or 45 cents a share. Revenue climbed 27% to $13.8 billion.

In the year-ago quarter, Microsoft earned $3.5 billion, or 35 cents a share. The results beat analyst forecasts of 39 cents per share on sales of $12.6 billion, according to a poll by Thomson Financial.

It was Microsoft's best first quarter since 1999, when Microsoft's Windows 98 operating system was launched in Japan and several European countries. The news sent Microsoft soaring 11%, to $35.53, in after-hours trading Thursday. Earlier, Microsoft shares rose 2% to $31.99.

Colleen Healy, general manager of Microsoft's investor relations, attributed hearty sales growth to "strong, diversified product offerings."

The business unit responsible for Vista hauled in $4.1 billion in quarterly revenue -- the same amount generated by the unit that makes Office 2007. Vista and Office 2007 began selling in January.

Roger Kay, president of researcher Endpoint Technologies Associates, says a bump in multiyear agreements indicates Vista is quickly gaining favor with corporate customers. Sales of Halo 3, the latest installment of Microsoft's shoot-'em-up game, and the Xbox 360 consoles that Halo is played on, contributed heavily to a $165 million profit for Microsoft's entertainment and devices division.

"There was an outstanding Halo effect," says Charles King, an analyst at researcher Pund-IT.

Microsoft also increased guidance for its fiscal year. It expects to earn $1.78 to $1.81 per share on revenue of $58.8 billion to $59.7 billion. "We're kissing $60 billion (in revenue) for the fiscal year," Healy says.

The results come a day after Microsoft trumped Google to acquire 1.6% of social-networking website Facebook for $240 million. (c) Copyright 2005 USA TODAY, a division of Gannett Co. Inc.