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Microsoft (MSFT) Q1 September 2009 Earnings Notes

October 25th, 2009

Press Release
-revenue $12.92 billion (12.32B est), EPS 40c (32c est)
-adding deferred revenue from Windows 7 upgrade program revenue $14.39 billion, EPS 52c
-Windows 7 launched October 22nd, 2009
-$38.998 billion net cash, $4.34 net cash/share

Guidance
-Reducing operating expenses to $26.2-26.5 billion for FY2010
-Capex $2.0 billion, COGS up 1% y/y as percentage of revenue
-Tax rate 25%

Conference call slides
-revenue driven by Windows and Xbox demand
-PC market grew 0-2% y/y and up mid-teens q/q
-OEM units grew 6%, several points over PC market
-x86 server market weak -20%
-online advertising -3%

FY2010 Outlook
-Windows in-line with PC market
-Microsoft Business Division continue to lag PC market
-Server & Tools slightly faster than server shipments
-Online Services equal to better than market (excluding access)
-Entertainment and devices roughly flat

Conference call
-seeing signs of economic stabilization
-35% annuity, 30% OEM, 30% license
-renewals in-line with expectations
-U.S. consumer demand was strong
-PC hardware demand grew significantly during the quarter
-Q1 was the highest Windows quarter ever, September best month ever
-Gaming revenue +$100 million y/y
-corporate IT remains difficult, cautious about budget spend rest of the year
-FY2011 operating expense discipline will remain
-for rest of fiscal year expect to see continue good consumer demand and emerging market demand
-big variable is negative trends in business PCs, which can’t continue forever. hope and expect to see rebound next year
-Europe relatively weak, Chin/emerging markets strong, U.S. is recovering a bit

Net-net
-Solid quarter, much better than last one. Consumer and emerging markets were very strong, while the enterprise and European markets remain weak
-Key driver is an up-turn in business upgrades, hopefully in 2010
-I wouldn’t get too excited about the outperformance of the Xbox division as it was driven by the Halo ODST software title launch
-At $28.02 with $2 earnings power, the stock is trading at 11.8Xs ex-cash


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