Shares in Microsoft were up $1.99 to end the day Thursday at $69.86 in trading on the Nasdaq stock market. But Microsoft gave back those gains and more in after-hours trading, falling by $2.71 to $67.15.
Brendan Barnicle, an analyst with Pacific Crest Securities, said Wall Street might have been hoping Microsoft would revise its earnings expectations upward and was disappointed to see guidance remain the same.
Microsoft Chief Financial Officer John Connors said that guidance for the full fiscal year would remain about the same although the company exceeded expectations in the second quarter ended Dec. 31.
In a conference call to analysts and journalists, he also cautioned that the company was still being hurt by sluggish PC sales and the general downturn in the global economy, particularly in Asia.
``I think the Street is trying to wrestle with what appeared to be a very strong quarter with what appears to be a diminutive look at the third quarter and fourth quarter,'' said Scott McAdams, an analyst and president of McAdams Wright Ragen in Seattle.
Despite the after-hours jitters, analysts said they were generally happy with the company's performance.
James Moore of Deutsche Bank Alex. Brown said the company looked ``as strong as ever'' and appears to be weathering the economic downturn well.
``I think they're in very good shape,'' Moore said. ``They're positioned extremely well.''
Analysts also cautioned that the famously conservative company may well beat its own expectations.
The Redmond software giant reported a 13 percent drop in net income for its second quarter after market close Thursday, largely due to a hefty one-time charge for antitrust lawsuit expenses, but revenues rose 18 percent over the same period last year.
For the quarter ended Dec. 31, Microsoft reported profits of $2.28 billion, or 41 cents per share, compared with net income of $2.62 billion, or 47 cents per share, in the same period last year.
The earnings included a one-time charge of $660 million, or about 8 cents per share, for estimated expenses in connection with a consumer class-action lawsuit.
Although a Baltimore judge threw out the proposed settlement, Connors said the company was still required to take that charge under accounting rules, if there is a possibility a revised settlement could be reached.
Analysts polled by Thomson Financial/First Call expected earnings of 43 cents a share. Excluding the one-time charge, Microsoft beat those expectations.
Microsoft had revenue of $7.74 billion, compared with $6.55 billion a year earlier. Those results handily beat Microsoft's earlier revenue expectations for the quarter.
Connors said the results were largely driven by Microsoft's new operating system, Windows XP - which he said is selling at the rate of two copies per second - and Xbox, the game console launched in November. The game system itself sells at a loss, although peripheral products such as games are profitable.
McAdams said he was pleasantly surprised by Windows XP's strong sales, which helped balance out what appeared to be slower sales in Microsoft's enterprise software and services division.
For its fiscal year ending June 30, the company expects revenue of $28.8 billion to $29.1 billion, slightly higher than earlier expectations. Earnings are expected to be between $11.5 billion and $11.8 billion, or between $1.57 and $1.60 per share.
For the third fiscal quarter ending March 31, Microsoft said it expects to earn $2.8 billion to $2.9 billion, or 50 to 51 cents per share, on revenue of $7.3 billion to $7.4 billion.
For the six months ended Dec. 31, Microsoft had earnings of $3.57 billion, or 64 cents per share, compared with earnings of $4.83 billion, or 93 cents per share, in the same period last year. Revenue was $13.87 billion, compared with $12.32 billion in the year-ago period.
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