Microsoft (MSFT)
Q1 2010 Earnings Call Transcript
October 23, 2009 10:30 a.m. ET

Executives

Bill Koefoed - General Manager, Investor Relations
Chris Liddell - Sr. Vice President and Chief Financial Officer
Frank Brod - Corporate Vice President and Chief Accounting Officer
John Seethoff - Deputy General Counsel

Analysts

Adam Holt - Morgan Stanley
John DiFucci - JP Morgan
Sarah Friar - Goldman Sachs
Brad Reback - Oppenheimer
Phil Winslow - Credit Suisse
Kash Rangan - Merrill Lynch
Heather Bellini - ISI Group
Todd Raker - Deutsche Bank
Sandeep Aggarwal - Collins Stewart
Robert Breza - RBC Capital
Katherine Egbert - Jefferies
Brendan Barnicle - Pacific Crest Securities
Tim Klasell - Thomas Weisel Partners
Gregg Moskowitz - Auriga

Presentation

Operator

Welcome to the Microsoft first quarter fiscal year 2010 earnings conference call. At this time all participants are in a listen-only mode. During the question-and-answer session please press star one on your touchtone phone. Today''s call is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the call over to Mr. Bill Koefoed, General Manager, Investor Relations. Sir, you may begin.

Bill Koefoed

Thank you, Barb, and thanks, everyone, for joining us this morning. As you know, yesterday was a significant day in Microsoft with the launch of Windows 7 and Windows Server 2008 R2. We hope that you were able to see and participate in some of the exciting launch activities held around the globe.

As usual, here with me are Chris Liddell, Senior Vice President and Chief Financial Officer, Frank Brod, Corporate Vice President and Chief Accounting Officer, and John Seethoff, Deputy General Counsel. Today, Chris will start with takeaways from the first quarter of our 2010 fiscal year. Then I''ll get into the details of the quarter before handing it back to Chris, who will discuss our business outlook. After that we''ll take your questions.

We filed our Form 10-Q this morning. In addition, we posted our quarterly financial summary slide deck, which is intended to follow the flow of our prepared remarks as well as provide a reconciliation of differences between GAAP and non-GAAP financial measures. You can find these documents at the investor relations website at microsoft.com/msft.

Today''s call will be web-cast live and recorded. If you ask a question, it will be included in our live transmission, any future use of the recording and in the transcript which will be posted on our website. You can replay the call and view the transcript at the Microsoft investor relations website until October 23, 2010. This call is protected by copyright law and international treaties. Unauthorized reproduction or distribution of this call or any portion of it without the express written permission of Microsoft may result in civil and criminal penalties.

We will be making statements during this call that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in today''s earnings press release and the comments made during this conference call and in the risk factors section of our Form 10-K, Form 10-Q and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statements.

I want to point out one last thing before I turn the call over to Chris. With the recent move of Windows Live, we changed the name of Client division to the Windows and Windows Live division. During the call, we will refer to this business as the Windows division.

Okay, Chris, the call is yours.

Chris Liddell

Thanks, Bill, and good morning, everyone. The results for the first quarter were strong, particularly on an adjusted earnings per share basis, primarily as a result of two main factors, consumer demand for our Windows and Xbox products combined with excellent cost controls. This result was achieved despite relative weakness in business spending, which has yet to see a broad based recovery. Having said that, it is showing signs of stabilization at lower levels and while it is too early to tell, the fourth quarter of fiscal 2009 may well have been the bottom of the economic reset.

Looking at the broader picture, at our final analyst meeting in July, I articulated our approach to what we described as the new normal around five major shareholder value strategies, maximizing cash flow, streamlining our cost structure, driving operational excellence, capturing market share and investing in innovation.