Microsoft improves Web market share, announces strong results

Microsoft has improved its share in the Web search market on the back of its Cashback programme even as it declared strong quarterly results. However, the broader markets were skeptical of the Redmond-based software giant's fortunes as the strong profit growth was accompanied by a tepid financial outlook for the future.

For its fourth quarter, which ended 30 June, Microsoft earned $4.3 billion, or 46 cents a share. That was up from $3 billion or 31 cents a share, for the corresponding period a year ago. Revenue rose 18 per cent to $15.84 billion.

Microsoft reported that revenue in its client division, which includes its flagship Windows operating system, jumped to $4.37 billion from $3.81 billion a year earlier. Also, its lucrative business division which includes the popular Office franchise, saw revenue rise to $5.26 billion from $4.63 billion in the prior year.

However, results from the online-services division were mixed. Although the division an increase in revenue to $838 million from $677 million a year ago, losses more than doubled from $210 million to $488 million.

To add to the strong growth numbers, monthly data published by audience research firm comScore Inc shows Microsoft's share of the US Web search market increase by 0.7 points to 9.2 per cent in June. This was very much in contrast to Google's surprising drop in market share, from 61.8 to 61.5 per cent. The target of both the above companies' attentions, Yahoo, gained 0.3 of a percentage point to 20.9 per cent.

However, in spite of this positive news, if there's one reason that Microsoft shares traded lower, it was the weak financial forecast. Microsoft said that it expects to post a first-quarter profit of 47 cents to 48 cents a share, with revenue in a range of $14.7 billion to $14.9 billion. Wall Street had forecast a profit of 50 cents a share on revenue of $14.7 billion to $14.9 billion.

Microsoft CFO Chris Lidell acknowledged anxiety about the economy's impact on Microsoft. "Clearly, people are getting concerned now about the length of softness in the US."

But he said that Microsoft anticipates that demand for PCs outfitted with its software will "remain healthy" over the course of the current fiscal year. "We're actually feeling very good about our position," Lidell added.

However, Microsoft's entertainment and devices division, which includes its Xbox game console and Zune media player, faces tough comparisons. Liddell said he expects the division will see anything from a 4 per cent drop to flat revenue growth during the current fiscal year.

Specifically, the prior fiscal year's high-profile release of the "Halo 3" video game set the division up for a challenging comparison, according to Liddell. Also, he said that the "challenging" online-advertising market experienced in the fourth quarter is likely to continue.