Apple's Lead

By Reuters  |  Print this article Print

Microsoft's strong quarter, with a 51 percent jump in quarter profit, allayed fears that Apple's iPad was cutting into sales of Windows-based PCs.

Microsoft was overtaken by archrival Apple as the most valuable tech company in May, and Apple hasn't looked back since as customers flock to buy its polished phones and tablets.

But the company had not seen any adverse effect on sales of computers running Windows due to Apple's popular iPad tablet device, which is close to selling 8 million units, said Chief Financial Officer Peter Klein.

"We haven't seen that at all," said Klein. "Analysts who have done research on it, largely think this (the tablet market) is additive to PC markets as opposed to instead of PCs."

Beats the Street

The world's largest software company posted a fiscal first-quarter profit of $5.4 billion, or 62 cents per share, up from $3.6 billion, or 40 cents per share, in the year-ago quarter. That beat Wall Street's average forecast of 55 cents per share, according to Thomson Reuters I/B/E/S.

Sales rose 25 percent to $16.2 billion, ahead of analysts' $15.8 billion average forecast.

Klein said companies were continuing to buy new computers, maintaining the recovery in tech spending, but consumers were not so strong.

"We feel very good about the business refresh," said Klein. "On the consumer side, it probably was a little bit less than people had anticipated, but it was still growth."

In the latest quarter, Microsoft's Office unit was the biggest engine, contributing $3.4 billion of profit. The Windows unit was the next most profitable with $3.3 billion.

The server and tools unit, which sells the software and services behind Internet-based computing and data storage -- so-called "cloud computing" -- contributed $1.6 billion in profit.

Microsoft's entertainment and devices unit, which sells the popular Xbox and less successful phone software, reported $382 million in profit, helped by Halo game sales. Figures from this unit are expected to improve this quarter, as Microsoft's new phone software and its Kinect motion-controller for Xbox go on sale in the United States next month.

As it accepts that it will likely not recapture its go-go growth of the 1990s, Microsoft has recently adopted a keen focus on cost control and profit margins. It cut 5,800 jobs last year and recently told its remaining 89,000 employees they will have to contribute to their healthcare costs for the first time in 2013.

Microsoft stuck to its forecast of $26.9 billion to $27.3 billion in operating expenses this fiscal year.

"The company is sticking to its new-found religion on expenses," said Kim Caughey Forrest, senior analyst at Fort Pitt Capital. "It used to be 'Let's throw everything at it and not care how much it costs.' That's great if you're growing gangbusters, but now we're seeing growth with margins and that's what we want to see as investors." (Additional reporting by Liana Baker in New York and Alexei Oreskovic in San Francisco; Editing by Richard Chang and Andre Grenon)