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Outlook Bright For Microsoft

Posted: Jan 28, 2008 07:02 AM by Wayne Pinsent

Tickers in this Article: T, IBM, APPL, MSFT

Microsoft (NYSE:MSFT) reported a robust 79% rise in net income for its fiscal second quarter, led by rising sales of Windows-based personal computers. The Washington-based computer software maker released its numbers after the markets closed last Thursday and helped bring some confidence to the markets by displaying strength to worried investors.

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Strong Quarter
Microsoft, after having some problems the last few years, reported net income $4.7 billion (50 cents per share), up from $2.6 billion (26 cents per share) one year earlier. The 92% rise in earnings per share for the tech bellwether handily beat consensus estimates of 46 cents per share. Revenues came up nicely as well, rising 31% to $16.4 billion from $12.5 billion last year. The results were reassuring for investors, as the stock has been little changed over the last few years until recently.

House of Straw or House of Bricks?
The economy's prospects of falling into recession has been in focus lately. Even when Apple (Nasdaq:AAPL) reported robust 57 % income growth, comments from the company on the economy and weaker than expected forward guidance brought investor sentiment down.

Microsoft may have helped curb this a little, as it raised its guidance and was optimistic about the global economy and its future growth. The company now forecasts a profit for the year of $1.85-1.88 per share with sales of $59.9-60.5 billion. The company had originally forecast earnings of $1.78-1.81 per share on $58.8-59.7 billion in sales. With Microsoft garnering 60% of revenues from overseas, its numbers are a sign that the global economy may hold up to the recent troubles.

The markets have been on a roller coaster during this shortened trading week, with the S&P 500 and Dow Jones Industrial Average opening more than 3.5% lower last Tuesday. There are a lot of concerns in the economy, but also there have been a lot of companies, including IBM (NYSE:IBM), AT&T (NYSE:T), and now Microsoft, that have reported positive and resilient news recently. I am not trying to paint a rosy picture of the economy, but it is important to note that a strong report from Microsoft is a sign that not all are suffering.

The Bottom Line
I like Microsoft's recent performance and future guidance. While I do like the stock, especially since the recent rise in the shares has since pulled back, I am more optimistic about what it may indicate for the global economy. I think these positive reports from companies like Microsoft show that all may not be lost in the economy.

By Wayne Pinsent

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