Microsoft Corp. posted an 11 percent rise in quarterly net profit on Thursday, boosted by a strong performance at its database division and shrinking losses from its Xbox 360 video game console.

The world’s largest software maker also said it will defer revenue of $1.5 billion related to the upcoming launches of a new Office software suite and Windows Vista, the first major upgrade of its operating system in five years.

Including the effects of the deferral, which will reduce profit this quarter by 11 cents per share, Microsoft forecast second-quarter profit of between 22 cents and 24 cents per share on revenue of $11.8 billion to $12.4 billion.

Analysts, on average, had forecast second-quarter earnings of 36 cents per share on sales of $13.4 billion, according to Reuters Estimates.

In after-hours trade, Microsoft shares rose to $28.50 from a close of $28.35 on Nasdaq.

The revenue deferral stems from a coupon program announced this week to allow buyers of personal computers to upgrade to Vista and Office 2007 when they debut next year.

“People might be concerned that operating income may drop in the next quarter, but what’s happening is that they’re deferring revenues for an upgrade program to Windows Vista,” said Toan Tran, an analyst with Morningstar.

“It really has no effect on the cash flow Microsoft has. It just won’t be recognized until the third quarter.”

The company also gave a full-year earnings outlook range of $1.43 to $1.46 per share on revenue of between $50 billion and $50.9 billion. Wall Street analysts have been looking for a full-year profit of $1.44 per share on sales of $50.3 billion.

Microsoft Chief Financial Officer Chris Liddell told Reuters in an interview that the full-year outlook was stronger than it might first appear.

A $20 billion tender offer for shares set for August was not fully completed, leaving a larger share base that would lower earnings by 4 cents per share more than previously anticipated, he said. But the company aimed to make that up with a better performance and other share repurchase programs.

“That’s primarily due to the fact that the tender was not fully subscribed, but we’re obviously very happy that we are able to maintain the range we previously had,” Liddell said.

“The way I look at it, we are able to make up all of that shortfall.”

In its first quarter ended Sept. 30, net profit was $3.48 billion, or 35 cents per diluted share, up 11 percent from $3.14 billion, or 29 cents per diluted share, a year ago. Sales rose 11 percent to $10.8 billion in the quarter.

Analysts, on average, had forecast earnings per share of 31 cents on revenue of $10.7 billion, based on Reuters Estimates.

Microsoft posted sales and profit growth at its server and tools business, powered by a 30-percent year-on-year rise in sales of its database software platform, SQL Server, and solid demand for its Windows server software.

The company also said it had sold 6 million Xbox 360 video game consoles since the launch last November, and losses at its entertainment and devices division shrank to $96 million from $173 million a year ago and $414 million the previous quarter.

“We’re progressively lowering the manufacturing costs of the console,” Liddell said. “So even for the ones we do sell, we are in a better shape from a loss-per-console perspective.”

He added that the number of games sold per Xbox rose in the quarter. While video game machines often sell at a loss, the games themselves are highly profitable.

Microsoft shares have risen about 25 percent since June, hitting a near-two-year high on investor optimism that the much-anticipated Windows and Office upgrades will pay off.

Microsoft is expected to launch Windows Vista and Office 2007 for corporate customers this quarter, and for retail consumers early next year. The two product lines comprise more than half of Microsoft’s revenue and almost all of its profit.

Source - CIOL

By Lisa Baertlein

LOS ANGELES (Reuters) - No one was buying hell on Friday — or at least its red-hot Web address.

HELL.com was among hundreds of Internet domain names up for auction in Hollywood, Florida, by domain asset management provider Moniker.com, a unit of marketing services firm Seevast Corp.

The owner put a minimum price of $1 million on the underworld’s domain, confident of high interest after the salacious address, Sex.com, sold for about $12 million earlier this year. But there were no takers with bids failing to reach the reserve price.

“The world is still alive and well. Nobody is going to hell right now,” Seevast Chief Executive Lance Podell told Reuters, adding that the domain would now be part of a silent auction.

Moniker was selling HELL.com on behalf of a group called BAT Flli LLC, whose founder Kenneth Aronson registered the name in 1995.

It’s not the first time that Aronson has tried to sell HELL.com. He put the address on the auction block in April 2000, at a starting bid of $8 million.

In an interview with Reuters in 2000, Aronson said members of The Final.org, an enigmatic collective of digital artists and creative visionaries, were using HELL.com as a private destination for their work.

According to the site, HELL.com is a “private parallel web” not accessible with a Web browser.

The auction on Friday included a list of domain names such as cameras.com, which pulled in $1.5 million. Sexeducation.com that sold for $120,000 and babies.net which went for $26,000.

Flowers.mobi, an address with the new extension for mobile devices, went for $200,000, while fun.mobi pulled in $100,000.

A boom in Internet advertising driven by companies such as Google Inc. and Yahoo Inc. have sent prices for sought-after domain names soaring.

Source-Reuters

Despite relatively good earnings, GM has much more work to do before it can claim that it is actually turning around

by David Welch

General Motors (GM) looks pretty good these days when you compare its performance to the huge losses reported this week by rivals Ford Motor (F) and DaimlerChrysler’s (DCX) Chrysler Group. But GM’s meager profits and burning cash pile show that the struggling automaker still has a long way to go before management and shareholders can start popping champagne corks.

GM made $529 million in the quarter if you exclude $644 million in special charges, including a big one for the sale of 51% of its GMAC finance arm. That’s a $1.6 billion turnaround from last year. But dig in to the numbers a bit and all but $81 million of that came from a few one-time tax windfalls. “These are baby steps in a long road to recovery,” says Gimme Credit analyst Shelly Lombard. “The quality of earnings was disappointing because most of it came from tax benefits and they are still burning cash.”

The bottom line for GM is that the company still has a very long way to go. The latest results, while much better than last year’s $1.1 billion third-quarter loss, are hardly enough to keep dissident shareholder Kirk Kerkorian from trying to woo shareholders should he decide to launch a proxy fight. Kerkorian was displeased when GM nixed his proposal to form an alliance with Renault-Nissan (NSANY) early this month, prompting his deputy, Jerome B. York, to quit the board that he joined only in February.

Cash Concerns

The arguments on the two sides are this: GM says that its small operating profit is evidence that Chairman and CEO Richard Wagoner Jr.’s turnaround plan is taking hold. Kerkorian’s camp argues that the company still has most of the long-term problems that got the company into its big mess in the first place.

Without a doubt, GM has big problems still to manage. While some new vehicles are generating strong margins, GM still has a lot of older models for sale that don’t drop much to the bottom line. GM also burned through $5 billion in cash in the quarter, including restructuring costs, and can’t yet say when the company will stop the burn. “Relative to where we came from, there is significant improvement,” GM Vice-Chairman and CFO Frederick “Fritz” Henderson said in an interview. “But our starting point was really bad.”

Henderson readily admits that turning GM’s cash flow around is still a big job. Even though GM—which has $20.4 billion in cash—will realize about $6 billion in cost cuts this year, only $2.5 billion of that is in real cash savings. The rest is purely savings on an accounting basis. Even the $448 million tax windfall GM enjoyed in the third quarter did not bring in any cash, Henderson said.

Next year, GM will get the full impact of Wagoner’s $9 billion cost-cutting plan. But $3 billion of that is also noncash.

Plus, GM still hasn’t paid for all of the severance packages and buyout deals that eliminated 35,000 jobs. The company paid $1.9 billion in cash in the third quarter for restructuring costs. Henderson says GM will be paying more separation costs into the first quarter of next year.

Burden of Delphi

Former GM parts unit Delphi will also drain GM’s cash in the future. GM still has contractual obligations to employees of the bankrupt parts maker. It may have to assume up to $7 billion in pension and health-care liabilities that would boost its cash expenses, albeit over many years.

Plus, to get the union to accept a lower wage-and-benefits package so that Delphi can drop costs and GM can possibly sell the company, the automaker may have to subsidize the wages of some of the employees. That could cost GM $400 million in pretax payments next year and $100 million a year after that. That, too, will eat some cash.

That doesn’t mean GM is headed toward bankruptcy, says Lombard. Its $20 billion cash pile is shrinking, but when the sale of 51% of GMAC goes through this quarter, GM should get $10 billion in cash.

Automotive profits still remain elusive, though. GM’s auto business lost $116 million, with the struggling North American business losing $367 million. What’s worse is that even as GM’s revenue per vehicle jumped almost $370 a car from the second quarter, the amount of profit its cars contribute actually fell.

Long Way to Go

Henderson blamed a number of factors, including rising shipping costs and a big jump in prices for raw materials, especially precious metals used in catalytic converters.

Another factor is GM’s model lineup. The new full-size SUVs launched in January pushed up per-vehicle margins because buyers tend to order loaded vehicles with lots of expensive options when new models hit dealerships. But as a new model rolls through its first year on the market, consumers buy less pricey models and their profit power slips.

Even though new models represent 30% of GM’s volume, the older models are under pressure from competition and have a tougher time making stronger profits, Henderson said.

It’s no wonder. GM’s U.S. market share is down from 26.6% to 24.5%, according to Autodata. To keep market share up, the company has pushed up incentives to more than $3,400 per vehicle—about $1,100 above what GM spent in the second quarter.

Those kinds of numbers are why Henderson says that GM is “a long way from where we want to get to.” Kerkorian would probably agree. Looking ahead, the question will be whether Wagoner and Henderson can get GM where it needs to be fast enough to keep Kerkorian at bay.

Welch is BusinessWeek’s Detroit bureau chief.

The directors of the Anglo-Dutch steel major Corus have decided to accept Tata Steel’s £4.1 billion ($7.7 billion) takeover offer, industry sources said on Friday.A formal announcement that the Corus board will recommend shareholders to accept Tata’s bid is expected to be made later on Friday. Corus did not officially confirm this as the final details were still being agreed.

Annanya Sarin, a spokeswoman for Corus, did not confirm or deny that the board had reached a decision on Tata’s takeover offer, but said that any decision would have been announced to regulators.

The Corus board’s reported agreement to Tata’s bid does not necessarily mean that the takeover will go through. It will need to be accepted by shareholders and industry sources were expecting counter-bids from the Russian Severstaal and the Brazilian steel maker Companhia Siderurgica Nacional (CSN).

A merger of Corus with Tata Steel will create the sixth largest steel producer in the world and would amount to the biggest takeover of a foreign firm by an Indian company.

Corus is currently ranked the ninth largest steel producer in the world while Tata is ranked 56th. Corus has 24,000 employees in Britain and 16,000 in Holland.

It’s a multi-billion dollar question. Will the Tatas’ balance sheet take the strain if the Corus deal cost it way over USD 10 billion? And would it be worth it? CNBC-TV18 figures it out.

A year ago as the Tatas unveiled ambitious plans in Jharkhand, Orissa and Chattisgarh, analysts were worried about whether its balance sheet would be able to bear the strain of over Rs 80,000 crore.

Now, as Tata Steel prepares to bid for Corus at USD 10.4 billion, the strain on the balance sheet will increase.

Tata Steel has free reserves of Rs 8,900 crore and its debt equity ratio is a very healthy 0.3. By global standards, there’s a lot of scope for leverage, but the Tatas have always prided themselves on maintaining the lowest debt-equity ratios.

Here’s why the Corus deal might have to go the Tetley way, 100% of the Corus equity would be put into a Special Purpose Vehicle shared between the Tata Steel-Tata Sons combine and three bankers, Deutsche, Standard Chartered and Citibank.

This will mean Tata Steel will have to pick up debt of about USD 2 billion. This will see its debt-equity ratio at 1:1, which is still very respectable.

So at current valuations of 580 pence per share or USD 10.4 billion, there’s no cause for concern. But the problem is that if Tata Steel were to make an offer for Corus experts believe it could spur Russian companies like Severstal and Eraz or also Brazilian company CSN to make counter offers.

And this could push up the price like it did in the famous Arcelor-Mittal deal, in which Mittal ended up paying 40 percent more than its initial offer for Arcelor.

Going by that sort of valuation the Tatas may have to shell out USD 15.9 billion or 888 pence/share. And that’s what analysts are worried about.

Would that sort of valuation justify the fact that it would catapult the Tata Steel-Corus combine output to 22 million tonne of steel a year? That would be behind the 110 million tonne Arcelor Mittal and the 30 million tonne of Nippon Steel, JFE and Posco.

That’s the USD 15 billion question the Tatas will have to grapple with.

Microsoft Corp. picked two well-respected technical minds to fill the void from founder Bill Gates’ pending departure in two years, but it also identified a next tier of leaders charged with reinventing the software giant to compete against younger, agile rivals.Grabbing headlines in Thursday’s announcements were Ray Ozzie, 50, who assumes the company’s top technical mantle as chief software architect, and Craig Mundie, 56, who takes over some of Gates’ role as long-term visionary.

But Microsoft also tapped a next tier of technical talent in J Allard, Steven Sinofsky and Bob Muglia — executives in their 30s and 40s — to play a larger role in shaping the company’s future business and technology strategy.

Analysts said all three have won the respect of Microsoft’s rank-and-file programmers with deep technical knowledge and an understanding that technology improvements cannot come at the expense of delays to new products, a problem that has plagued the company’s mainstay Windows division.

“They have really good technical minds and really good experiences about what kind of decisions you have to make in order to ship a product,” said Rob Horwitz, an analyst at independent research firm Directions on Microsoft.

“Those are the guys with their feet on the ground and not as much pie in the sky.”

An ability to ship new products in a timely manner seems all the more important in light of investor perceptions that Microsoft has been outmaneuvered by aggressive and more agile competitors like Google Inc. and Yahoo Inc.

“Microsoft is at a crucial inflection point,” said Jupiter Research analyst Joe Wilcox. “The technologists are important for the company’s future.

The decision by Gates to step back from Microsoft in two years follows longtime Windows guru Jim Allchin’s plan to retire after Windows Vista ships in 2007, representing a changing of the guard at the Redmond, Washington-based company.

“The world has had a tendency to focus a disproportionate amount of attention on me. In reality, Microsoft has always had an unbelievable strong depth and breadth of technical talent,” Gates said at a news conference on Thursday.

WHO’S NEXT

Sinofsky, 40, earned his stripes as the head of product development for the Microsoft Office business software team, gaining a reputation as a tough taskmaster with an ability to meet targeted release dates.

Earlier this year, he took on the role of leading the team of developers creating the next version of Windows after Vista. Sinofsky’s responsibilities include integrating the operating system with a set of Windows Live Web-based services.

Allard, 37, gained prominence with a note he sent to Microsoft leaders about the looming importance of the Internet, which became the basis for the company’s change of strategy to embrace the Internet in the mid 1990s.

An avid video game player, Allard now oversees the engineering and design of the Xbox game console. He pushed Microsoft into online gaming well before rivals Sony Corp. and Nintendo Co. Ltd.

Muglia, 46, has the longest track record of the three at Microsoft, having joined the company in 1988. As the senior vice president of Microsoft’s server and tools business, Muglia needs to keep outside developers happy with its tools and technology professionals using its servers.

All three executives were already considered stars in the company, but analysts said granting them more say over strategy and keeping them happy and motivated is a smart move.

Like Napster and BitTorrent before it, LTDnetwork’s Qtrax is a brand from the early days of peer-to-peer music piracy that is relaunching as a completely legal service.The reborn version formalized the evolution by announcing a deal with EMI Music to make the music company’s catalog available to its users.

Qtrax still allows consumers to get free music, but there will be no free lunch. The service is ad-supported, and the free songs are in a proprietary “.mpq” format that can only be played a limited number of times and only on the computer to which they were downloaded.

Additionally, each time a track is played, the Qtrax player offers click-to-buy purchasing.

It also suggests that the user upgrade to a premium subscription service for a flat monthly fee, in which case they get unlimited downloads in Windows Media format that can be moved or transferred to almost any digital music player except Apple’s iPod. The songs become unplayable should the subscription lapse.

“Qtrax is going to offer the consumer a pretty cool way to sample and discover music in a way that P2P users are used to,” said Ken Parks, EMI’s senior vice president for strategy and business development. “The difference is, you’ll be presented with stuff that is cleared in a way that respects copyright yet preserving that ‘free’ experience. You’ll not be asked to pay until you want to pull the trigger, so it’s a pretty friendly place to explore and discover music.”

Financial terms of the EMI deal were not disclosed, but EMI does get a share of advertising revenue generated by Qtrax.

“Advertisers are willing to pay a lot of money to be associated with music, and the music industry is willing to cooperate as long as the value is preserved and the artists get paid,” Parks said.

Some of the advertising will be served in way relevant to the results of song searches and will include click-through options to buy products on Shopping.com.

An additional opportunity allows labels to promote artists through spotlight placement on the Web site. EMI is testing the capability internally with such artists as KT Tunstall, Coldplay and Gorillaz.

Parks said that EMI also will get valuable data because it will know every time a song is played and whether that resulted in the consumer making a purchase. That same tracking capability ensures that royalty payments are very accurate, he added.

There is no firm date for Qtrax to launch, though EMI has begun delivering and registering its content with Qtrax’s filtering system, powered by Audible Magic. The company has said it is waiting to sign with the other major labels before it goes live to the public and is on schedule to enter a test phase this year.

Qtrax will incorporate community-building and music discovery tools along with incentive programs that provide discounts or additional music plays.

Founded in October 2000, LTDnetwork is a division of Brilliant Technologies Corp. that specializes in technologies, software and services for online retail, advertising, media and marketing companies.

In April, EMI Music announced a separate initiative with Rhythm NewMedia, the first major label agreement to provide videos to an ad-supported mobile service.

Collaborative trials already are under way. The ads are embedded in the on-demand programming similar to television but are highly targeted to individual users.

Skype, the Web telephone company, said on Monday it would allow consumers in the United States and Canada to make free phone calls, a promotional move that marks a new blow to conventional voice calling services.The offer, which extends through the end of 2006, covers calls from computers or a new category of Internet-connected phones running Skype software making calls to traditional landline or mobile phones within the United States and Canada.

Previously, users of Skype, a unit of online auctioneer eBay Inc., were required to pay for calls from their PCs to traditional telephones in both countries. Calls from North America to phones in other countries will incur charges.

Skype already offers free calling to users worldwide who call from computer to computer.

The company is seeking to accelerate usage in the North American market, where adoption of its voice-over-Internet technology has lagged other regions of the globe. Based in Luxembourg, it counts more than 100 million registered users globally, including 6 million in the United States.

Henry Gomez, general manager of Skype North America, said he believes the move would rapidly accelerate adoption of the service. Skype will pick up the interconnection costs of making calls to phone networks owned by other carriers, he said.

“Skype anticipates that completely free calling in the U.S. and Canada will expand Skype’s increasing penetration in North America and solidify Skype’s position as the Internet’s voice communication tool of choice,” Skype said in a statement.

The offer is likely to put price pressure on rival voice-over-Internet phone service Vonage Holdings Corp., which is expected to go public later this month. A spokesman did not return calls seeking comment.

Although Vonage and Skype serve somewhat different markets — with Vonage acting as a full replacement service for traditional phones over Internet lines, and Skype considered by most as a complement to existing service — the free offer could siphon customers away from Vonage.

“In one stroke, Skype simplifies the choice to try Skype,” said Phil Wolff, an editor at Skype Journal, an independent consulting group that publishes an online news site on Skype developments. “This promotion targets Skype’s hardest market: North America.”

The move puts pressure on rival Internet services such as Microsoft Corp., Yahoo Inc., AOL, Earthlink and Google Inc., which charge small per-minute fees for computer-to-phone services, Wolff said.

Skype, which allows free Web-based calls between members, said the offer to U.S. and Canadian consumers is made feasible by the low cost structure of North American telecom markets relative to other countries, where phone tariffs are higher.

“The structure and efficiency of the telecommunications industry in the U.S. and Canada make it possible for Skype to offer free calls,” Skype said on its Web site.

In October, eBay CEO Meg Whitman signaled that Skype users could eventually expect to make telephone calls for free, with no per-minute charges, as part of a package of services through which carriers make money on advertising or transaction fees.

“In the end, the price that anyone can provide for voice transmission on the ‘Net will trend toward zero,” she said.

The company is betting that by combining electronic markets, online payment systems and Web-based communications, eBay can emerge as a leader in all three businesses.

Gomez said the free phone service promotion will not alter the company’s plans to generate more than $200 million in revenue during 2006, up from roughly $60 million last year. Skype will promote the offer via online advertising, radio spots and ads in selected local cable TV markets, he said.

Apple Computer is not liable for trademark infringement against Apple Corps, the music company owned by the Beatles, a judge in London’s High Court ruled on Monday.Apple Corps, owned by Paul McCartney, Ringo Starr, John Lennon’s widow Yoko Ono and the estate of George Harrison, argued the computer company has violated a 1991 trademark agreement by moving into the music business through its market-leading iTunes online store.

Apple Computer argued in court hearings in London earlier this year that iTunes was primarily a data transmission service, permitted by the agreement.

The 1991 out-of-court settlement, which included a $26 million payment by Apple Computer, set out areas in which each party would have exclusive use of their respective fruit-shaped logos.

Software giant Microsoft Corp. said on Friday it hired away Steve Berkowitz, the chief executive of rival Internet company Ask.com, to head Microsoft’s own Internet business.Effective May 8, Berkowitz succeeds David Cole, a 20-year Microsoft veteran, who is set to begin a one-year leave of absence, Microsoft said in a statement. He had outlined his plans in a memo to employees in February.

Berkowitz is credited in the industry with orchestrating the turnaround of Ask.com, the Web search and media business acquired by Barry Diller’s conglomerate, IAC/InterActiveCorp, for $1.85 billion 13 months ago.

Under his leadership, Ask, originally known as Ask Jeeves, enjoyed a revival in its audience and market share gains in the highly competitive Web search business over the past year.

Berkowitz was named the senior vice president of Microsoft’s recently formed Online Business Group, which brings together the operations of Microsoft’s MSN Internet business unit with other consumer businesses within Microsoft.

The group includes MSN.com, MSNTV and MSN Internet Access programming, advertising sales, business development, and marketing for Live Platforms, MSN and Windows Live, with responsibility for generating greater advertising sales.

Microsoft’s Online Business Group competes against rivals such as Google Inc., Yahoo Inc., Time Warner Inc.’s AOL unit and Ask.com.

Berkowitz will report to Kevin Johnson, co-president of Microsoft’s platforms and services unit, Microsoft said.

He propelled Ask Jeeves into the contemporary Web search market with the acquisition of Teoma in 2001. He led the redesign of Ask, made the site easier to use by removing pop-up and banner ads and providing greater context on searches.

Revenue more than doubled under his leadership.

Previously, Berkowitz was president and chief operating officer of technology trade publisher IDG Books, where he built a hit consumer brand by expanding the “Dummies” series of books to cover topics ranging from the Web to pet care. He expanded IDG Books by acquiring publishing brands such as Cliffs Notes, Frommers Travel Guides and Betty Crocker Cookbooks.