Microsoft: Vista shines, Xbox charge stings

After the bell, Microsoft (NASDAQ: MSFT) reported its financials for the quarter. For the quarter, Microsoft did $13.4 billion -- an increase of 13% from the same period. Net income only rose 7.3%, to $3.06 billion (.31/share).

The net income growth was inferior to revenue growth as a result of an 8 cent per share ($1.06 billion) charge for xbox warranties. After backing out the xbox charge, the net income growth was a very strong 26%. Also after backing out the warranty charge, Microsoft's numbers matched analyst expectations of 39 cents per share while beating analyst expectations for revenues.

Besides the $1.06 billion charge, the video game unit's sales slipped by 10% and losses doubled. However, excluding this unit, Microsoft's other businesses turned out a solid quarter. The business unit grew sales by 19% and the client unit (Windows...think Vista) grew sales by 14%.

For next quarter, Microsoft said it expects $12.4-12.6 billion in revenues and diluted EPS of .38-.40 per share. The EPS figure is in-line with the consensus analyst estimate for the quarter while the sales figure appears to be below expectations.

All in all, Microsoft remains a great company with only one unit -- video games -- causing pain. Despite its incredibly large size (surpassed $50 billion in sales in the last twelve months), Microsoft continues to grow at impressive rates. Although I doubt Microsoft would ever actually do such a thing, a recapitalization of the balance sheet would work wonders for the share price of the stock.