Microsoft Looks Mighty

SAN FRANCISCO -- Now that Microsoft(MSFT) has pulled a $1.2 billion rabbit out of its hat, the six-cent-a-share question is whether it can do it again, quarter after quarter.

Those are the numbers by which the Redmond, Wash., software company beat the Street's third-quarter revenue and earnings estimates Thursday.

Or as UBS analyst Heather Bellini put it in a research note Friday: "What's a $1 billion-plus of revenue and 6 cents of EPS upside among friends?" Bellini raised her 12-month price target on the stock Friday to $40 from $37. Microsoft is an investment banking client of UBS.

The stock was recently up $3.01, or 9.4%, to $35, almost assuredly on its way to a new 52-week closing high.

The company acknowledged that strong third-quarter PC sales was a big contributor to sales of its operating systems and Office software, as was its well-timed launch of video game phenom Halo 3 a few days before the end of the quarter. The company recorded $330 million in Halo revenue, little more than the sale of pre-ordered games, sidestepping a meltdown in next year's third-quarter comparisons.

With economic turmoil, PC sales could flag in coming quarters. But for a company where timing is everything, Microsoft is pacing itself with a refresh to its server line in early 2008 that the company expects to provide growth over the coming two years, when its Office software will have "tough comparisons" with 2007 figures, according to CFO Chris Liddell.