MSFT FYQ2 Revenue In-Line, EPS Beats by a Penny; Shares Slip

Microsoft (MSFT) this afternoon reported fiscal Q2 revenue roughly in line with consensus, and beat on the bottom line by a penny.

Revenue in the three months ended in December rose to $21.46 billion, yielding EPS of 76 cents.

Analysts had been modeling $21.5 billion and 75 cents.

Microsoft’s “Windows and Windows Live” division reported a 24% year-over-year increase in revenue, to $5.88 billion, though on an adjusted basis, excluding deferred revenue, the total rose 11%.

The “Server & Tools” business division saw revenue rise 9%, helped by “double-digit” sales of “SQL Server” and “System Center.”

Microsoft gave no details in the release about sales of its Surface tablet computer.

Microsoft’s “Online�Services” division saw an 11% rise in revenue. The “Entertainment” division that produces the Xbox and the “Halo” video game series, saw revenue decline 11%, to $3.77 billion, though it would have been down just 2% when adjusted for deferred revenue.

Microsoft management will host a conference call with analysts at 5:30 pm, Eastern time, and you can catch the webcast of it here.

Microsoft shares, after an initial pop, are now trading down 55 cents, or 2%, at $27.08 in late trading.

Update: During a brief chat following the results, Microsoft‘s outgoing director of investor relations Bill Koefoed was kind enough to spend a few minutes with me discussing the results. Koefoed is moving to a position with Microsoft’s Skype operation.

Microsoft had $1.33 billion in deferred revenue for its Windows 8 program, its Microsoft Office 2013 release, and for future game deliveries within the “Halo” franchise, among the various non-GAAP items. When all those deferrals are factored in, Koefoed said the adjusted total of $22 billion in revenue and 81 cents a share in profit was a record for the company in any quarter.

Microsoft had total company bookings growth of 11%, which is the highest level “in a couple of years,” Koefoed pointed out. Bookings for the Server group were up 15%, year over year, driven by SQL Server, among others. Bookings for the Office & Tools division were up 18%, with “near-historical renewal rates for Office” he added. Windows division license bookings were up “mid-teens.”

Koefoed declined to give numbers for the Surface, stating “We think of Surface as part of the overall Windows 8 story; We had our launch of Windows 8 and had some very good hardware out on the market.” When I asked if supply of new touch-enabled computers was the main challenge to Windows growth, Koefoed responded that “There’s not any one thing, really. Intel (INTC) has talked on their call about fact that they have [tablet process] Clover Trail devices coming to market. We continue to work with OEMS to make sure we get glass on devices that enables a great touch experience. And there’s got to be execution in a lot of different areas.”

Regarding Microsoft’s search partnership with Yahoo! (YHOO), Koefoed said the company had made tremendous strides in narrowing the operating loss in its online operations to $283 million, through a combination of higher rates on search advertising, as well as “op-ex discipline.”

“We still have work to do to get that to break-even,” he conceded. “We’ve saw a pretty significant rate improvement in search; We’ve done that work and it’s shown up in our [revenue per search] RPS rates.”