Financial Exec Says Microsoft’s Fiscal Picture Bright

REDMOND, Wash.—Microsoft Corp. officials said they felt good about the company’s absolute and relative performance over the past few years. The only company that had outperformed it on a compound annual growth rate basis was SAP AG.

Taking the podium Thursday to address the financial analysts and media assembled here at the company’s campus headquarters, John Connors, Microsoft’s chief financial officer said Microsoft had also invested very heavily for long-term growth, with some $35 billion going into the client and information worker business, and $12 billion into home and entertainment.

“The innovation pipeline we have is broad and full and there is so much product and technology in this pipeline for future years,” Connors said, adding that to grow Microsoft had to continue to invest in its long-term and to make some bold bets.”

Microsoft expected 2005 to be a tough year and a year of tough comparables, particularly in comparison to fiscal year 2004. The Upgrade Advantage revenue the company recognized in 2004 would not recur in 2005, and that was worth $1 billion. Still, the company expected operating profit growth across all businesses and a positive trend on unearned revenue, he said.

“We are also making very good progress on costs, and in 2005 we expect all stock-based expenses to be down $3.2 billion. We also expect nothing like the 2004 fiscal year’s legal settlement costs of $2.5 billion in the fiscal year 2005. We do expect every single business to grow this current fiscal year,” he said.

Click here to read more about the presentations presented at Microsoft’s analyst day.

Microsoft also felt very good about the cash distribution plan it came up with and announced last week. The payout would be the largest in corporate history and the plan reflect the company’s current strength and the optimism it had for the future.

Microsoft’s strategy around acquisitions remained unchanged and revolved around how this would add value for customers and increase shareholder value. Over the past four years Microsoft had bought 46 companies for some $5 billion.

“We don’t feel we need to buy companies to grow and we will continue to look and buy, mostly smaller companies,” he said.

Non-commercial software, Linux and other open source software, continued to be a risk, but Microsoft had a firm handle and firm plan on that risk, he concluded.

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