Consumers help Microsoft beat Q1 forecasts

24 Oct 2003

Strong consumer demand for PCs helped Microsoft achieve stronger than expected first-quarter results. The software giant announced revenue of US$8.22bn for the quarter ended 30 September 2003, a 6pc increase over US$7.75bn in the prior year. Operating income for the first quarter was US$3.15bn, compared to US$3.03bn reported last year, while net income was US$2.61bn.

“While corporate IT spending was slow to improve this quarter, we saw strength across all of our consumer businesses, driving higher than expected revenue for the company,” said John Connors, chief financial officer at Microsoft. “Delivering value to our customers with innovative software like the new Office System, Exchange Server 2003, and Small Business Server and executing on our plan to better help protect customers from a growing number of security attacks are our top priorities for the rest of the year.”

The reference to computer security was significant because although Microsoft’s results were slightly better than its own and market expectations, the company also reported a sharper-than-expected decline in unearned revenue (money taken in by Microsoft but not booked as sales for that quarter). The company said fears over security issues had caused some customers to be reluctant to sign longer-term deals. Some analysts believe that CEO Steve Ballmer’s recent announcement of wide-ranging security initiatives reflect concerns that Microsoft’s business may be vulnerable to the growing wave of security attacks.

While its core Windows business remained robust, Microsoft’s peripheral activities also performed well. MSN had another strong quarter with over 50pc advertising revenue growth, and Home and Entertainment revenue grew by 20pc, driven by the successful launch of the Xbox holiday offering. Another division, Mobile and Embedded Devices, also advanced with revenue growing to US$53m on strong results from Windows Mobile, MapPoint, and Windows embedded products. This week AT&T Wireless announced the availability of the Motorola MPx200, the first Windows Mobile-based Smartphone in North America.

Looking ahead, Microsoft said it expected revenue for the quarter ending 31 December 2003 to be in the US$9.7bn and US$9.8bn range. For the full fiscal year ending June 30, 2004, revenue is expected to be between US$34.8bn and US$35.3bn.

The encouraging results should provide a positive backdrop to Microsoft Ireland’s launch this morning of Office System, the company’s new core office productivity suite.

By Brian Skelly