Microsoft FY Q4 Profits Top Street Expectations (Updated)

Microsoft this afternoon reported better than expected results for its fiscal fourth quarter ended June 30, and the stock is trading higher in after-hours trading.
Revenue for the quarter was $18.059 billion on a GAAP basis, or $18.599 on a non-GAAP basis, up 4% on a GAAP basis, or 7% on a non-GAAP basis from a year ago. The non-GAAP results include $540 million in deferred revenue related to the company’s Windows 8 Upgrade Offer. The Street consensus had been for $18.13 billion, which apparently is compatible with the GAAP results
Profits, meanwhile, beat Street estimates, but it takes a little work to understand what they reported. Microsoft, as previously disclosed, took a  non-cash charge to write down  its aQuantive acquisition, and as noted reported deferred revenues related to the company’s Windows 8 upgrade program. According to Microsoft, Street estimates reflect the upgrade program costs, but not the aQuantive writedown; the company reported a non-GAAP EPS number that included both. To get to the apples-to-apples number with Street estimates, you can either use the GAAP number and add back the hit for aQuantive, or take the non-GAAP number and back out the deferred revenue hit.
Ergo, the company had a GAAP loss of 6 cents a share, thanks to a goodwill impairment of $6.19 billion, or 73 cents a share; the company took a hit of six cents a share for the deferred revenue item. The company reported a non-GAAP profit of 73 cents a share; the apple-to-apples number is really 67 cents, which topped the Street at 62 cents.
“We delivered record fourth quarter and annual revenue, and we’re fast approaching the most exciting launch season in Microsoft history,” CEO Steve Ballmer said in a statement. “Over the coming year, we’ll release the next versions of Windows, Office, Windows Server, Windows Phone, and many other products and services that will drive our business forward and provide unprecedented opportunity to our customers and partners.”
The company no longer gives detailed guidance, but did say that it affirms its 2013 operating expense guidance of $30.3 billion to $30.9 billion.
Microsoft ended the quarter with $63.04 billion in cash and equivalents. About 85% of that is outside the U.S.
The company bought back about $1 billion of stock in the quarter.
As for the Windows Upgrade Offer, it provides consumers who buy qualifying Windows 7 PCs the option to purchase a downloadable upgrade to Windows 8 Pro for an estimated retail price of $14.99 during the promotion period. Qualifying purchases must be made between June 2, 2012 and January 31, 2013, and offers must be redeemed by February 28, 2013. The company says the deferral impacted only the timing of revenue recognition and not cash flows from operations during the periods reported.
Microsoft estimates that the overall PC market was roughly flat in the quarter, which is consistent with estimates from Gartner and IDC. The company said business PCs were up 1% while consumer PCs were down 2%.
The company shipped 1.1 million Xbox 360 consoles in the quarter, down from 1.7 million a year ago.
Skype minutes in the quarter was about 115 billion, up more than 50% from a year ago.
Here are some other details from the announcement:

• Operating expenses were flat with a year ago; operating income was up 12%.
• The Server & Tools business grew revenues 13% in the quarter from a year ago. That reflects growth of more than 20% for SQL server, and more than 20% for Systems Center.
• Microsoft Business Division grew 7%. That includes growth of more than 45% for Microsoft Link, and more than 25% for Dynamic CRM.
• Windows & Windows Live Division fell 13% in the quarter; adjusting for the Windows Upgrade Offer, revenue was down 1%.
• Online Services Division revenue was up 8%.
• Entertainment and Devices Division revenue was up 20%; that largely reflects the acquisition of Skype.
• The company posted an operating loss of $6.67 billion in Online Services, due largely to the aQuantive goodwill charge.
• The Entertainment and Devices Division posted an operating loss of $263 million.
• Multi-year licensing revenue was up 14%.
• The company said it has a record unearned revenue balance of $20.1 billion, up 17% from a year ago.
• Cost of revenue was up 12%, due largely to payments made to Nokia, the inclusion of Skupe and higher headcount-related expenses.

Microsoft in late trading is up 79 cents, or 2.6%, to $31.45.