Microsoft Posts Record Revenue, but Quarterly Profits Fall

By Peter Galli  |  Posted 2007-01-25 Email Print this article Print


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Microsoft managed to notch up record quarterly revenue for the second quarter of its fiscal year, but it also recorded a 28 percent fall in quarterly net profit after deferring more than $1 billion in revenue.

While Microsoft managed to post record quarterly revenue of $12.54 billion for the second quarter of its fiscal year, which ended Dec. 31, exceeding even the high end of its own projections, it also recorded a 28 percent fall in quarterly net profit after deferring some $1.6 billion in revenue.

The Redmond, Wash., software company, which released its second quarter results Jan. 25 after the financial markets in New York had closed for the day, posted operating income of $3.47 billion for the quarter under review, with net income coming in at $2.63 billion and diluted earnings of $0.26 a share.

That was sharply down from the $3.65 billion in net income, and diluted earnings of 34 cents per share, reported a year earlier.

These second quarter figures all exceed the high-end of earlier management predictions for the quarter of revenue between $11.8 billion and $12.4 billion, operating income of $2.9 billion to $3.1 billion, and diluted earnings per share of $0.22 to $0.24.

The results reflect the deferral of $1.64 billion of revenue and operating income, $1.13 billion of net income, and $0.11 of diluted earnings per share from the second to the third fiscal quarter, due primarily to the technology guarantee programs announced on Oct. 24, 2006 for Windows Vista and Office 2007.

Read more here about how Xbox and SQL Server 2005 helped drive Microsoft's revenue last quarter.

"Revenue growth over the same period of the prior year would have been 14 percentage points higher before the technology guarantee programs," said Chris Liddell, Microsoft's chief financial officer.

"Results this quarter exceeded our expectations across the board, with revenue growth at or above our high-end guidance for all divisions. Healthy PC and server markets as well as broad-based business and consumer demand for Microsoft offerings fueled revenue growth this quarter," he said.

Microsoft released Xbox 360, SQL Server 2005, Visual Studio 2005 and Microsoft Dynamics CRM 3.0 during the same period last year, with the products contributing over $1 billion of revenue growth a year later, Liddell said.

"The execution of our field sales and marketing teams were a major contributor to this quarter's extremely positive results," said Kevin Turner, Microsoft's chief operating officer.

"Customers have responded positively with strong contract renewals and license sales. We are pleased with such strong financial results and look forward to making Windows Vista and Office 2007 system widely available to all customers next week," he said.

Click here to read why eWEEK Labs feels change is good for SQL Server 2005.

With regard to the company's business outlook, Microsoft management said that, for the fiscal third quarter ending March 31, it expects revenue of between $13.7 billion and $14 billion.

Operating income is expected to be in the range of $6.1 billion to $6.3 billion, with diluted earnings per share of $0.45 to $0.46 likely.

This guidance includes the impact of third quarter recognition of the revenue deferred from the first and second fiscal quarters, primarily related to the technology guarantee programs, Liddell said.

Microsoft management also expects revenue for the full fiscal year, ending June 30, 2007, to be in the range of $50.2 billion and $50.7 billion, with operating income of $19.3 billion to $19.7 billion and diluted earnings of $1.45 to $1.47 per share.

Check out's for Microsoft and Windows news, views and analysis.

Peter Galli has been a financial/technology reporter for 12 years at leading publications in South Africa, the UK and the US. He has been Investment Editor of South Africa's Business Day Newspaper, the sister publication of the Financial Times of London.

He was also Group Financial Communications Manager for First National Bank, the second largest banking group in South Africa before moving on to become Executive News Editor of Business Report, the largest daily financial newspaper in South Africa, owned by the global Independent Newspapers group.

He was responsible for a national reporting team of 20 based in four bureaus. He also edited and contributed to its weekly technology page, and launched a financial and technology radio service supplying daily news bulletins to the national broadcaster, the South African Broadcasting Corporation, which were then distributed to some 50 radio stations across the country.

He was then transferred to San Francisco as Business Report's U.S. Correspondent to cover Silicon Valley, trade and finance between the US, Europe and emerging markets like South Africa. After serving that role for more than two years, he joined eWeek as a Senior Editor, covering software platforms in August 2000.

He has comprehensively covered Microsoft and its Windows and .Net platforms, as well as the many legal challenges it has faced. He has also focused on Sun Microsystems and its Solaris operating environment, Java and Unix offerings. He covers developments in the open source community, particularly around the Linux kernel and the effects it will have on the enterprise.

He has written extensively about new products for the Linux and Unix platforms, the development of open standards and critically looked at the potential Linux has to offer an alternative operating system and platform to Windows, .Net and Unix-based solutions like Solaris.

His interviews with senior industry executives include Microsoft CEO Steve Ballmer, Linus Torvalds, the original developer of the Linux operating system, Sun CEO Scot McNealy, and Bill Zeitler, a senior vice president at IBM.

For numerous examples of his writing you can search under his name at the eWEEK Website at



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