Healthy server demand drives Microsoft revenues

29 Apr 2005

Despite citing a mixed enterprise software environment, Microsoft reported a 5pc rise in revenues to US$9.62bn for its third fiscal quarter. Revenue growth was driven largely by double-digit growth in the company’s SQL Server and Exchange Server product lines.

Operating income for the third quarter includes US$768m related to legal charges, compared to US$2.53bn in legal charges in the prior year. Net income and diluted earnings per share for the third quarter were US$2.56bn and US$0.23 per share, which included US$0.05 of legal charges. For the previous year, net income and earnings per share for the third quarter were US$1.32bn and US$0.12 per share, which included US$0.17 of legal charges.

Revenue and operating income growth for the quarter were driven by a healthy server and tools business. Third-quarter revenue growth for the segment of 12pc over the prior year resulted from double-digit growth in the SQL Server and Exchange Server product lines. Large customers that acquired Microsoft server products during the quarter include Continental Airlines, First Horizon National Corporation and LendingTree LLC.

During the quarter, Microsoft announced significant new real-time communication and collaboration capabilities for the Microsoft Office System of products, servers and services. The acquisition of Groove Networks enables Microsoft to embed real-time, server-based and peer-to-peer collaboration solutions within its Office suite. Microsoft also introduced Microsoft Office Communicator 2005, the Microsoft Office Live Communications Server 2005 Service Pack, and Microsoft Office Live Meeting 2005.

During the quarter, Microsoft announced the creation of 100 new jobs in Dublin at a new European operations centre in Sandyford.

The company’s mobile and embedded devices revenue grew 31pc over the prior year as Windows Mobile products experienced strong demand. Windows Mobile licence sales for connected devices were more than double prior year levels while the Windows Mobile software platform continues to experience strong momentum with developers. There are currently more than 380,000 active Windows Mobile professional developers and more than 18,000 Windows Mobile applications.

The company repurchased more than 95 million shares of common stock for US$2.42bn during the quarter and has repurchased more shares year to date than it did for all of fiscal 2004. Overall, the company has returned US$39bn to investors during the fiscal year through share repurchases and dividends.

“Despite a mixed enterprise software environment, the quarter played out largely as we expected and operating income and earnings per share results were in line with our expectations,” said Scott Di Valerio, corporate vice-president and corporate controller at Microsoft. “Given our optimism about the future with our strong product pipeline and the growth opportunities from our investments in innovative products and services, we expect increased revenue growth in fiscal 2006.”

Looking ahead to the next quarter, Microsoft predicted revenues in the range US$10.1bn to US$10.2bn and an operating income of between US$4.1bn and US$4.2bn. For the full-fiscal year, the company predicts a revenue of between US$43.3bn and US$43.1bn and an operating income between US$18.3bn and US$18.9bn.

By John Kennedy