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Microsoft Q2 net profit doubles

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CIOL Bureau
New Update

Reed Stevenson



SEATTLE: Microsoft Corp., the world's largest software maker, reported that its quarterly profit doubled on stronger demand for personal computers and video games as well as lower costs.



The Windows operating system developer also raised its outlook for its current fiscal year ending in June, and its shares rose 1.7 percent in after-hours trade.



Microsoft posted a net profit of $3.46 billion, or 32 cents a share, for its fiscal second quarter ended in December, compared with $1.55 billion, or 14 cents a share, a year earlier.



Excluding stock-based compensation, Microsoft said it had a profit of 35 cents a share, compared with Wall Street expectations of 33 cents, according to Reuters Estimates.



Revenue rose 6.6 percent to $10.82 billion.



"You can't punch a hole in these numbers," said Charles Di Bona, an analyst at independent research firm Sanford C. Bernstein & Co.



Microsoft reported that sales of the video game "Halo 2" -- which totaled 6.3 million copies -- for its Xbox game console improved results in its home and entertainment division.



"The PC environment is actually quite healthy," Microsoft Chief Financial Officer John Connors said in an interview, saying that Microsoft expects PC shipment growth of nine to 11 percent for the fiscal year to June.



"Home and entertainment was also a highlight for us. ... We're very pleased with 'Halo 2' results and Xbox Live (online game service)," Connors said.







Analysts had been looking for such an improvement, as it could raise prospects for its next generation of Xbox video game consoles, expected by the 2005 holiday season.



Microsoft said that sales of its software for networked computers as well as revenue in its fledgling cell-phone software division also contributed to growth.



With growth slowing in the company's core Windows and Office businesses, Microsoft Chief Executive Steve Ballmer is counting on its newer products to fuel future growth.



Shares in Microsoft, based in Redmond, Washington, rose 44 cents to $26.55 in after-hours trade on the Inet electronic brokerage from a $26.11 Nasdaq close. The shares are down 6 percent from a year earlier and have lost half of their value in the last five years since the peak of the tech boom.



OUTLOOK HIGHER



After paying out its first-ever dividend, ending employee stock options and doling out the biggest-ever cash payout by a U.S. company, Microsoft is finding it tougher to convince investors it can match historical growth rates.



"The question is sustainability," said Di Bona, referring to the Xbox business's strong performance in the last three months of 2004.



Microsoft's home and entertainment division, which includes Xbox, reached its first quarter of operating profits since launching the rival to Sony Corp.'s PlayStation 2 system in 2001. Microsoft also raised its forecast for Xbox video game console sales to a worldwide installed base of 21 million to 22 million Xboxes, up from a prior estimate of just under 20 million units.



For Microsoft's current third fiscal quarter, the company expects a profit of 27 or 28 cents a share on revenue between $9.7 billion and $9.8 billion. Analysts on average had been expecting a profit of 27 cents a share on $9.66 billion in revenue.



"They beat their own and the Street's expectations for the December quarter, but their own guidance is a bit light for the March quarter," said Barry Randall, portfolio manager of the $100 million First American Technology Fund, which does not own Microsoft stock.



Microsoft is seeking to cut a billion dollars in costs, and it reported that its stock-based compensation costs were lower in the latest quarter.



For the full fiscal year to June, Microsoft raised its earnings outlook to $1.09 to $1.11 a share from its previous forecast of $1.07 to $1.09.



The revenue outlook for fiscal 2005 was raised to a range of $39.8 billion to $40.0 billion from the previous projection of $38.9 billion to $39.2 billion. Analysts had expected $39.3 billion.



Microsoft's next big product release will be in 2006 with the release of the next version of Windows, code-named Longhorn.



Microsoft will meet with representatives of the U.S. Justice Department next month to review whether the next version of its Windows operating system complies with the company's antitrust settlement with the government.



(Additional reporting by Mark McSherry and Megan Davies in New York and Ben Berkowitz in Los Angeles)

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