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Microsoft Puts Floor under Tech – At Least for the Moment

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Forget the fact that Microsoft came in Thursday with record-breaking fiscal Q2 earnings, up 92%, to $4.7 billion, or 50 cents a share, on revenues, up 30%, to $16.37 billion and an operating income of $6.48 billion, the giant leaps are skewed anyway because of an easy compare due to last year's deferral revenue and the company’s technology guarantee programs.

Analysts expected 46 cents on $15.95 billion.

But that’s history. What’s important as Wall Street tries to stumble back from the January weenie roast that threw billions of dollars on the fire was Microsoft’s guidance.

And Microsoft didn’t disappoint. It jacked its forecasts up and came in with numbers that met or bettered pundits’ figures.

This quarter it’s expecting to earn between 43 and 45 cents on revenues of $14.3 billion-$14.6 billion, with an operating income of $5.6 billion to $5.7 billion. And for the year it thinks it’ll clear $1.85-$1.88 on $59.9 billion to $60.5 billion, with operating income between $24.2 billion and $24.4 billion.

Its optimism in the face of US spending and recession fears is expected to put a much-needed floor under tech – which is after all the most important platform in technology right now – something Apple failed to do Wednesday and was turned into pulp as a result.

In contrast to Apple’s serious loss – down $65 in the last few weeks after the last day – Microsoft was up 4.6% to $34.79 after-hours.

In a statement ahead of the company’s conference call, COO Kevin Turner said, “We are in the midst of another strong year with great momentum heading into calendar year 2008. We continue to see healthy demand from both businesses and consumers in the United States and our growth in emerging markets is especially strong. Looking across Brazil, Russia, India and China, our field revenue reached a combined growth rate over 65% this quarter.”

On the call CFO Chris Liddell said that Microsoft, which can be conservative in its forecasts, is “cautious about what may happen in the US economy” but so far he’s seeing “no spillover from an economic slowdown in the US into out business.”

Microsoft has buffers like the fact that 60% of its business comes from outside the US, but so far the American consumer is holding up his end, he said, pointing to Xbox sales.

Microsoft is projecting 13%-14% growth in PC sales, up a point for the year, which ends in June, and no declines other than “historic seasonality.”

Office should grow 16%-17%, not 14%-15%. Servers and tools it figures, will be good for 17%-18% growth, not 16%-18%. Online services should be up 37%-40%, not 33%-37%. And entertainment and device revenue should be up 21%-24%, not 15%-20%.

Overall Microsoft is firing on all cylinders on all products in all channels and all geographies. Liddell said that “all of our businesses met or beat our expectations” in the last six months and, as proof, its revenue of over $16 billion exceeds its previous record by $2 billion.

The company also said that since Vista came out a year ago its client business has grown over 20% on average to $4.34 billion in revenues crediting its anti-piracy initiatives for helping. Vista licenses, as it previously announced, have passed the 100 million mark and the first service pack is due this quarter.

In Q2 Microsoft’s Business Division and its Server and Tools unit each saw double-digit revenue growth rates year-over-year and together increased revenue over $1 billion versus last year. The Business Division generated 23% business revenue growth complements of the new Office, SharePoint and Exchange models. That works out to $4.81 billion in sales.

Microsoft has sold a total of 17.7 million Xbox 360s, it said, since it started selling the widgets, which is 70% better than where it was this time last year.

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