Microsoft expects growth from new products

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Microsoft on Thursday raised growth forecasts for the next 12 months, signalling the arrival of new products in some of its biggest businesses that should lift its growth rate back into double digits.

The move came as the world's biggest software company reported earnings and revenues for the final quarter of its fiscal year that were in line with Wall Street estimates.

The company’s shares dipped more than 2 per cent to $25.87 in pre-market trade on Friday as its forecast of sales for the first quarter disappointed some analysts. The company said it expected sales of $9.7bn-$9.8bn against average analyst estimates of $9.92 billion in a Thomson Financial survey.

On Thursday, Chris Liddell, chief financial officer, said revenues for the year to next June were expected to rise 10-12 per cent, compared with an earlier estimate of 9-11 per cent.

The company's decision to ratchet up its growth forecasts could mark the reversal of a slowing revenue trend that saw growth slip below 10 per cent for the first time last year.

Surprisingly strong PC sales over the past year have enabled Microsoft to maintain a steady growth rate, with revenues up 8 per cent to $39.8bn compared with its own forecast at the start of the year of 4 per cent. However, the expansion has fallen behind the sort of level to which investors had become accustomed as the company prepared a number of products for launch.

The coming months are expected to see a return to higher levels of growth, thanks to new products like its SQL server software and the Xbox 360 games console, Mr Liddell said.

Wall Street expects these products to be a prelude to a further pick up in 2007 and beyond.

While the new products would prompt increased marketing spending, other efficiencies were likely to leave profit margins unchanged, Mr Liddell said.

For the latest quarter, Microsoft reported pro-forma earnings of 33 cents a share, compared with expectations of 31 cents a share. The difference was accounted for by higher investment income, said Mr Liddell. Revenues increased 9 per cent to $10.16bn, in line with forecasts.

Results in the latest quarter were helped by 16 per cent revenue growth in the server and tools division, to $2.7bn, and a 22 per cent advance in the home and entertainment division to $610, thanks to higher sales of Xbox consoles and games.

On a reported basis,Microsoft's net income climbed 38 per cent to $3.7bn, or 34 cents a share. The latest numbers included legal charges of 5 cents a share to settle antitrust claims and a tax benefit of9 cents a share.

The launch of the latest Xbox is expected to contribute to revenue growth of more than 50 per cent for the home and entertainment division this year, Mr Liddell said.

The server business would grow by 11-13 per cent, while the core client and information worker divisions would each grow 5-6 per cent, he added.

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