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Brier Dudley's Blog

Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

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July 17, 2008 1:40 PM

Microsoft earnings tidbits: Danger costs, plus MSFT's mortgage issue

Posted by Brier Dudley

Among the interesting nuggets in Microsoft's earnings report today: The February acquisition of Palo Alto, Calif.-based handset software maker Danger added $24 million in costs to the entertainment group.

Sounds like the group is also stepping up investments into the next Xbox (or Zune?).

The report doesn't say exactly what Microsoft paid for Danger, but it does say Microsoft experienced $24 million in expenses related to the company. Hmmm.

"Research and development expenses (in the Entertainment and Devices Division) increased $141 million or 38%, primarily reflecting increased headcount-related expenses, increased product development costs, and costs relating to Danger, including a $24 million in-process research and development expense."

In another surprise disclosure, Microsoft said its investments include mortgage-backed securities but they're mostly "prime" mortgages and the portfolio is not directly exposed to the sub-prime meltdown:

"While we own certain mortgage and asset-backed fixed-income securities, our portfolio as of June 30, 2008, does not contain direct exposure to subprime mortgages or structured vehicles that derive their value from sub-prime collateral. The majority of the mortgage-backed securities are collateralized by prime residential mortgages and carry a 100% principal and interest guarantee, primarily from Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and Government National Mortgage Association. The remainder of the mortgage position is collateralized by high quality international prime residential mortgage loans."

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