[Am-info] Legal costs hit Microsoft profits

[Erick Andrews]

I don't understand the rationale how MSFT is a good investment
with these kinds of lawsuits and payouts.  I guess it would be
like investing in Jesse James or the Dalton brothers.  See:

http://news.bbc.co.uk/2/hi/business/3652027.stm

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Giant software firm Microsoft's profits have been hurt by the cost
of settling a raft of law suits over patents and anti-trust
allegations.

Microsoft's profits dropped 38% to $1.32bn (œ744m) for its third
quarter to 31 March, compared with the same period a year earlier.

Legal settlements meant a charge of $2.5bn against its pre-tax
profits.

But sales rose by a healthy 17% to $9.18bn.  Technology sector
analysts were delighted at the overall picture.

Ongoing

Microsoft is battling the European Union over a $600m fine, a
record in an EU anti-trust case.

However, it recently agreed settlements in several patent cases.

It paid $1.6bn to end a patents dispute with Sun Microsystems, and
$440m to Californian firm InterTrustend in another patent case.

It also settled a class-action anti-trust lawsuit bought against
it by customers in Minnesota, whose lawyers were seeking a payout
of up to $505m.

Payout

Investors are now keen for Microsoft to outline what it plans to
do with its massive cash pile and are pushing for an increase in
the company's dividend payment.

Microsoft just keeps on growing Chief financial officer John
Connors said that he would outline the company's plans later this
year.

Investors can certainly expect to hear more on that at the
analyst meeting in July," he said.  "I think we have made good
progress on a number of legal fronts."

As well as the settlements, analysts said they were particularly
impressed with sales of personal computers and larger servers, two
key areas of growth.

Server sales increased by 17% in the third quarter, while PCs rose
by 14%.

"Growth has been phenomenal," said Clark Chang, an analyst at
Fulcrum Global Partners.

Game on

Another area that is doing well is Microsoft's video-game console,
the X-Box.

The company has had to cut prices to compete with rivals such as
Sony's Playstation, but the strategy seems to be paying off.

X-Box sales surged by 30%, though the discounting has had an
effect on the product's profitability.

Microsoft did, however, add a word of caution.

Mr Connors warned that it might prove difficult for the company to
keep growing at the frenetic pace seen in previous quarters.

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Erick Andrews