Microsoft adds voice to corporate recovery claims

23 Jan 2004

Microsoft has reported a drop in earnings in its fiscal second quarter, as the software giant took a huge charge for stock-based compensation for employees. However, it said that revenue increased 19pc as the company saw signs of improvement in corporate technology spending.

The company attributed increased revenues to the launch of Office 2003 and growing strength in the PC market. Since it makes far more from corporate purchases of PCs than consumer sales, a rebound in spending by companies could make Microsoft a big beneficiary of the recovery.

Microsoft employs around 1,200 people in Dublin in a variety of programming, localisation, e-business, internet, games development, business support and sales roles.

For the quarter ended 31 December, Microsoft reported earnings of US$1.55bn, or 14 cents per share, down from earnings of US$1.87bn, or 17 cents per share, in the same quarter last year. The company reported a 19pc increase in revenues in the latest quarter to US$10.15bn, above the US$9.74bn analysts had expected. Some US$300m of the increase, 4pc, was due to the decline in the dollar, which boosts the reported value of foreign revenues.

However, cost associated with stock-based compensation led Microsoft to report a 17 per cent decline in overall reported net income to US$1.55bn, or 14 cents a share.

These figures included a US$1.48bn after-tax charge linked to its repurchase of underperforming stock options from employees last autumn, as well as US$690m of regular stock-related compensation costs. Microsoft broke with common practice in the technology industry last quarter in reporting these costs as regular business expenses.

All three of Microsoft’s main businesses topped expectations in the quarter. Unexpectedly strong demand for the latest version of the company’s recently launched Office 2003 productivity software pushed revenues at its information worker division up by 27pc from a year before, to US$2.9bn. Revenues at the client division, which includes the Windows PC operating system, climbed 22pc to US$3.1bn. Server sales, meanwhile, rose 21pc to US$2.1bn.

“Consumer and corporate demand for PCs continued to exceed our expectations and resulted in solid double-digit revenue growth for Windows XP and Office products,” said Connors. “In the second quarter, the overall corporate IT market also began to show signs of a recovery, with increased demand for both desktop and server products. Going forward, we will continue to focus on driving broader customer adoption of our latest enterprise products, including Office 2003, Windows Server 2003, Exchange Server 2003, and Small Business Server 2003.”

By John Kennedy