Microsoft Corp Earnings: Margins Keep Shrinking

Rising costs hurt S&P 500 (NYSE:SPY) component Microsoft Corporation (NASDAQ:MSFT) in the second quarter as profit dropped from a year earlier. Microsoft develops, licenses, and supports a range of software products and services for a variety of computing devices.

Investing Insights: Will the iPad 3 Be the Next Catalyst for Apple’s Stock?

Microsoft Earnings Cheat Sheet for the Second Quarter.

Results: Net income for Microsoft Corporation fell to $6.62 billion (78 cents per share) vs. $6.63 billion (77 cents per share) a year earlier. This is a decline of 0.2% from the year earlier quarter.

Revenue: Rose 4.7% to $20.89 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: MSFT beat the mean analyst estimate of 76 cents per share. Analysts were expecting revenue of $20.94 billion.

Quoting Management: “We delivered solid financial results, even as we prepare for a launch year that will accelerate many of our key products and services,” said Steve Ballmer, chief executive officer at Microsoft. “Coming out of the Consumer Electronics Show, we’re seeing very positive reviews for our new phones and PCs, and a strong response to our new Metro style design that will unify consumer experiences across our phones, PCs, tablets, and television in 2012.”

Key Stats:

Last quarter marked the fifth straight quarter that the company saw shrinking gross margins as gross margin fell 2.8 percentage points to 73% from the year earlier quarter. Over that time, margins have contracted on average 3.3 percentage points per quarter on a year-over-year basis.

Revenue has risen the past four quarters. Revenue increased 7.3% to $17.37 billion in the first quarter. The figure rose 8.3% in the fourth quarter of the last fiscal year from the year earlier and climbed 13.3% in the third quarter of the last fiscal year from the year-ago quarter.

Last quarter’s profit decrease breaks a streak of three consecutive quarters of year-over-year profit increases. Net income rose 6.1% in the first quarter from the year earlier, while the figure rose 30% in the fourth quarter of the last fiscal year and 30.6% in the third quarter of the last fiscal year.

The company beat estimates last quarter after being in line with expectations in the first quarter with net income of 68 cents per share.

Looking Forward: Analysts appear increasingly negative about the company’s results for the next quarter. The average estimate for the third quarter has moved down from 64 cents a share to 60 cents over the last ninety days. At $2.72 per share, the average estimate for the fiscal year has fallen from $2.85 ninety days ago.

Competitors to Watch: Google Inc. (NASDAQ:GOOG), Novell, Inc. (NASDAQ:NOVL), Oracle Corporation (NASDAQ:ORCL), Intl. Business Machines Corp. (NYSE:IBM), Hewlett-Packard Company (NYSE:HPQ), Yahoo! Inc. (NASDAQ:YHOO), Apple Inc. (NASDAQ:AAPL), Adobe Systems Incorporated (NASDAQ:ADBE), Intel Corporation (NASDAQ:INTC), and Sony Corporation (NYSE:SNE).

Investing Insights: Will the iPad 3 Be the Next Catalyst for Apple’s Stock?

(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

To contact the reporter on this story: Derek Hoffman at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com