Microsoft OEM Sales Saves the Quarter

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Microsoft Corp. (NASDAQ: MSFT) reported third fiscal quarter 2014 results after markets closed Thursday. The software behemoth reported diluted earnings per share (EPS) of $0.68 on revenues of $20.4 billion. In the same period last year the company reported EPS of $0.72 on revenues of $20.49 billion. The consensus estimates called for EPS of $0.63 on revenues of $20.39 billion.

OEM sales of the company’s Windows operating system rose by 4% largely due to 19% growth in sales of the Pro version of Windows. Gross margins on commercial license sales was better than 90%. Here’s where the magic is for Microsoft

The company also reported sales into its retail channel of 1.2 million Xbox One game consoles and 800,000 Xbox 360 consoles in the quarter.

Revenue from sales of the Surface tablet rose 50%.

Microsoft did not offer guidance in its press release, but said that it would provide guidance during its conference call later this afternoon.

The consensus estimate for fourth fiscal quarter 2014 EPS is $0.67 on revenues of $21.04 billion. For the full fiscal year ending in June EPS is forecast at $2.70 on revenues of $84.57 billion.

The company’s new CEO, Satya Nadella, said:

We are making good progress in our consumer services like Bing and Office 365 Home, and our commercial customers continue to embrace our cloud solutions. Both position us well for long-term growth. We are focused on executing rapidly and delivering bold, innovative products that people love to use.

There are bits of good news sprinkled throughout the results. Revenue in the devices and consumer licensing business rose year-over-year although it still remains down about $600 million through the first three fiscal quarters. Devices and consumer hardware sales are up about $570 million in the quarter, likely due to the Xbox One. Commercial licensing, as we note earlier was also up year-over-year for the quarter and is up for the first nine months as well.

Today’s report is pushing the share price up about 1.9% at $40.60 in after-hours trading. The stock’s 52-week range is $30.84 to $41.66. Prior to today’s release Thomson/Reuters had a consensus price target of around $40.00 on the company’s shares.

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