Microsoft News Tracker

John Letzing at MarketWatch:

Microsoft Corp. late Thursday reported a 28% drop in quarterly profit as the world’s largest software company was hurt by the delayed release of Vista, the newest version of its flagship Windows program.

Microsoft said it earned $2.63 billion, or 26 cents a share, for its fiscal second quarter ended Dec. 31, compared to $3.65 billion, or 34 cents, a year earlier.

Sales rose 6% to $12.54 billion from $11.84 billion, helped by higher sales of server software and stronger-than-expected demand for Microsoft’s Xbox 360 video game player.

The results, which reflected the deferral of $1.64 billion in sales and 11 cents a share in earnings related to a Vista marketing program, still beat Microsoft’s own forecast and the expectations of Wall Street analysts.

It should be “still beat the already reduced expectations”, as I mentioned earlier today.

The earnings report is here, but we don’t have to be constrained by annoying accounting artifacts, so here are some segment one liners with the raw numbers from Microsoft’s 10-Q neatly augmented by deferrals where appropriate:

Client:

Add back in the $1.1 billion of Client revenue that was deferred and you get $3.689 billion in revenue, a 7.6% increase which is a little below independent estimates of 4Q06 PC sales growth and Microsoft’s estimate of 8-10%. Microsoft says they actually sold 10% more units so it’s not an unmixed blessing.

Business (mostly Office):

Add back in the $0.5 billion of Office revenue that was deferred and you get $4.012 billion in revenue, a 8.8% increase which, while not fantastic, is better than past quarters.

Entertainment and Devices (mostly Xbox and an occasional Zune):

Here’s $1.3 billion of increased revenue without any additional profits due to the usual suspects. No, not keyboards and mice.

Online Services:

Going nowhere even faster than usual due to increased headcount for “Windows Live, adCenter, and other properties” plus building datacenters.

Server and Tools:

The Rodney Dangerfield of Microsoft kicks butt and takes names yet again.

Bottom Line:

The oddity of the “deferral” aside, Microsoft’s cash cows came close to keeping pace with the overall market which was a bit better than last quarter while Server and Tools continued its winning ways. Entertainment and Devices and Online Services keep stinking out the joint. There wasn’t really a lot new here despite the Three Card Monte with the Vista and Office 2007 deferral.

Finally, Microsoft reported that there was $1.1 billion in net income deferred for Vista and Office 2007 but gave no break out. Adding that back in would give Client and Business in aggregate a little better than 0% income growth, but that is likely largely due to the expenses accompanying the new products.