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Redmond, Washington-based Microsoft reported quarterly profits that soared beyond expectations and an  optimistic financial outlook Thursday, despite economic worries in the United States and $245 million in losses in its online services division, the company announced in an earnings release. Compared with figures from the same October through December period one year earlier, Microsoft saw its profit jump from $2.63 billion to $4.71 billion, a 79 percent increase of $2.08 billion. Losses Hinder Online Business Growth Despite the strong signs in all of the other major businesses within Microsoft, its online services division, where rival Google continues to dominate, has struggled and now reports losses that more than doubled the $118 million loss from the second quarter of 2006, to $245 million. On both the Internet services and online advertising fronts search leader Google has consistently led Microsoft, even with the world's largest software maker's $6 billion purchase of Seattle-based online advertising agency aQuantive Inc. in May 2007. That acquisition did play a part in revenue growth within the division that, according to Microsoft, rose 38 percent to $863 million. Microsoft pointed to the costs associated with its data center building projects around the world and expenses associated with the aQuantive purchase, its largest purchase to date, as playing a part in the losses it announced Thursday, although business in the division is comprised mainly of sales from online advertising. Christopher Liddell, Microsoft’s chief financial officer said Thursday the division will, despite significant spending in its effort to hold ground against Google, require investment "for the foreseeable future," during a conference call with industry analysts. "We certainly see it as a multiyear journey that we're going on," Liddell added in reference to the online services division. As Microsoft attempts improve the search capabilities of its Live Search and MSN portal products, it has invested billions and continues to spend on acquisitions and new data centers that may help in its attempt to reign in Google. Since acquiring aQuantive, online publishers such as CNBC and Viacom have switched to Microsoft's platform. "Since we announced our acquisition of aQuantive, 60 new publishers have switched to the Atlas publishing platform," said Microsoft general manager of investor relations Colleen Healy, who also sought to point out the bright spots within the company's online services division, such as its additional revenue from aQuantive, major investment in social networking Web site Facebook, and a tally of nearly 50 million downloads of its Windows Live Suite product since it was launched in November. SearchEngineWorld detailed Microsoft's $240 million investment in Facebook during October 2007. Online Advertising with aQuantive and FAST Microsoft predicted that its online advertising division will grow over the next two quarters, and that its online services group will grow between 37 and 40 percent during the same period, according to Liddell. He also said  that he did not expect Microsoft's purchase of Oslo-based enterprise data search company Fast Search and Transfer to have a notable fiscal impact on annual company results. "For the online business it will be, for the foreseeable future, in an investment mode," said Liddell, who also said he sees forthcoming momentum in the division. "We are building a business that we'd like to see have critical mass in the next few years. When you look for it in the online business you have to think about the revenue several years out and that's the infrastructure that we're building," said Liddell. The earnings figures released Thursday show that Microsoft's online advertising business is about one-third the size of Yahoo's and one-seventh Google's size. "You have to look really hard to find any weakness in our results in the first half" of the fiscal year," said Liddell, preferring instead to focus on the overall growth Microsoft has shown over the last quarter. Many Separate Brands Some analysts see weak brand identity as playing a factor in the struggles Microsoft's online services group has faced, with six separate brands serving to confuse a public comfortable with easy to remember one word names such as Google and Yahoo. Microsoft has, in its MSN product, MSNBC, Windows Live Search, Office Live, aQuantive network, and online services division, made it difficult for consumers to recognize and distinguish between its online brands, according to some analysts. One analyst, Sanford C. Bernstein & Company's Charles di Bona warns against paying too much attention to Microsoft's online services division without considering the overall strong earnings it announced Thursday. "Microsoft is still investing without much to show for it yet in the online business, but that is kind of nitpicking when you look at the results of the company over all," di Bona said in a recent New York Times article. "The strong performance seems to be pretty much across the board," added di Bona. Microsoft's Outlook Strong As Profits Climb, Despite Online Losses Unlike recent earnings statements from other technology companies such as Apple, Motorola and eBay, Microsoft attempted to make the case that it does not see the downturn in the U.S. economy having a significant impact on its continued growth. "We have not seen any significant spillover for an economic slowdown in the U.S.," said Liddell, and added, "we feel optimistic going into the second half." Liddell made mention of the recent economic turmoil, noting that "no company is immune" to such a slowdown, but added that Microsoft's growth is expected to remain strong. "For all of our businesses, clearly, there is a scenario where a slower economy could seep through to slower sales. But our overall growth, we believe, is very healthy," said Liddell. Overall Figures Sound Due largely to the success of all other major divisions within the company, and bolstered by strong holiday computer sales, Microsoft saw profits increase 79 percent during the Christmas trading quarter to $4.7 billion, up from $2.6 billion during the same period during 2006 and well ahead of analyst targets. The strong showing is partially due to delays during the release of the Windows Vista operating system, which caused Microsoft to defer $1.64 billion in revenue. Even with this taken into account Microsoft saw a 15 percent revenue increase and operating income that rose by 27 percent. Since launching Vista in January 2007 Microsoft has sold over 100 million copies, the company said. Microsoft's MSN Live Search site held the third position during December, with a 13.8 percent share of total searches, according to figures released earlier this month by Web traffic analysis firm Nielsen Company, behind leader Google's 56.3 percent and second place Yahoo's 17.7 percent. Related Links:
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10:40 pm on Jan. 25, 2008 (utc 0)