Microsoft Q2 profits show Halo effect

28 Jan 2005

Microsoft has reported that its profits for the second fiscal quarter doubled on last year’s figure from US$1.55bn to US$3.46bn driven by major growth in its business and consumer segments, particularly in home entertainment with the success of products such as Halo 2. The company’s revenues grew 7pc on the year to a record US$10.82bn.

Operating income for the second quarter was US$4.75bn, which was an increase of US$3.27bn over the same period in the prior year. The results of the second quarter of the prior year included US$2.21bn in compensation expense incurred in connection with the Employee Stock Option Transfer Program.

During the quarter, 6.3 million units of Halo 2 were sold, resulting in a game attach rate of over 30pc to the Xbox installed base of almost 20 million consoles.

“Our record revenue came from across-the-board strength in both our business and consumer segments” said John Connors, chief financial officer at Microsoft. “And our long-term approach to growing new businesses is paying off. Home and entertainment delivered its first profitable quarter and all three of the company’s emerging businesses combined generated a nearly US$700m improvement in operating results compared to the second quarter of last fiscal year.”

Microsoft’s server and tools business grew 18pc versus the prior year’s comparable quarter. Adoption of SQL Server remained particularly robust with more than 25pc year-over-year revenue growth. During the quarter, Exchange 2003 marked its one-year product launch anniversary and has had the fastest adoption of Exchange licenses ever. Companies that acquired Microsoft server products during the quarter included Eastman Chemical Company, Hewlett-Packard, Morgan Stanley and Premera Blue Cross.

Microsoft’s home and dntertainment segment delivered record revenue during the quarter and achieved positive operating income. “Our Xbox business fired on all cylinders and provided a strong ending to what was a great year for the platform and our partners,” said Robbie Bach, senior vice-president of the home and entertainment group.

“Not only did we achieve record software sales with our strongest games lineup to date, but we also sold more consoles than our competitors during the critical holiday sales season in the US, and increased Xbox Live membership to more than 1.4 million members.”

By John Kennedy