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Microsoft FY Q3 Tops Estimates; Revs $17.41B; EPS 60 Cents (Updated)

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Microsoft posted better-than-expected financial results for its fiscal third quarter ended March 31.

For the period, the company reported revenues of $17.41 billion, up 6% from a year ago, and ahead of the Street consensus forecast of $17.18 billion. Profits were 60 cents a share, two cents better than the Street consensus view.

The strong results were driven by 14% growth in the company's server and tools business, which had revenue in the period of $4.57 billion. The Microsoft Business Division, which includes Office, grew 9%, to $5.81 billions. The Windows unit rose 4%, to $4.62 billion; Online was up 6% to $707 million. Entertainment and Devices Division was the laggard, off 16% to $1.62 billion, a slide the company blamed on a soft console gaming market.

The company posted an operating loss in the online unit of $479 million, which compares with a loss of $776 million in the year-earlier period, although it was a bit worse than the December quarter loss of $458 million. Entertainment and Devices Division lost $229 million in the quarter, compared with a year ago profit of $210 million.

“We’re driving toward exciting launches across the entire company, while delivering strong financial results,” CEO Steve Ballmer said in a statement. “With the upcoming release of new Windows 8 PCs and tablets, the next version of Office, and a wide array of products and services for the enterprise and consumers, we will be delivering exceptional value to all our customers in the year ahead.”

Microsoft reduced its operating expense guidance for the June 2012 fiscal year to a range of $28.3 billion to $28.7 billion; the previous forecast range was $28.5 billion to $28.9 billion. For FY 20113, the company sees operating expenses of $30.3 billion to $30.9 billion, representing 6% to 8% growth from the mid-point of FY 2012 guidance.

Microsoft finished the quarter with $59.529 billion in cash and equivalents, up from $52.772 billion at the end of the June 2011 fiscal year.

In late trading, MSFT is up 79 cents, or 2.6%, to $31.80.

Update : Microsoft director of investor relations Bill Koefoed said in an interview ahead of the company's conference call this afternoon that the company's server and tools business "crushed it" in the March quarter. Including the unearned portion of revenues, he notes, bookings were up over 20%. The premium version of SQL Server was up more than 30%. Windows Server premium editions were up in the high teens. Systems management software sales were up more than 20%. "We've got incredibly strong momentum in server and tools," he says, noting that the company's SQL Server line is well positioned to take advantage of current trends in Big Data.

On the Microsoft Business Division, he notes that multi-year licensing was up 13%. There was double-digit growth in both Exchange and Sharepoint, with over 35% growth in Link, and over 30% growth in Dynamic CRM.

Windows, he notes at 4% grew a little faster than the overall PC business, which most estimates have in the 2%-3% range.

Online advertising revenue was up 9% in the quarter.

On the weakness in gaming, he notes that results were softer than the company had expected going into the quarter, but that anyone who has been paying attention to recent NPD data on the gaming market will not be surprised. He notes that Xbox still has 42% of the console market.

Koefoed didn't provide any real update on Windows Phone 7, although he noted that the launch of the Nokia 900 with AT&T exceeded expectations, with stock outs in some locations. And he pointed out that Verizon's CFO this morning said on their post-earnings call that the company is committed to expanding its offerings of Windows Phones this year.

He notes that the company bought back about $1 billion of stock in the quarter.

Finally, Koefoed asserts that the strong results in the company's enterprise business show Microsoft is taking market share from VMware, Oracle and Salesforce.com.

"It was a pretty clean quarter," he said. "People are going to be pleased with the performance overall."