Microsoft Earnings Surpass Expectations

By Peter Galli  |  Posted 2005-01-27 Print this article Print

The company announces a record $10.8 billion in revenue, a 7 percent rise from the year-ago quarter, which it says reflects strength in both its business and consumer operations.

Microsoft Corp. on Thursday posted a 7 percent year-over-year rise in revenue to a record $10.8 billion for the quarter ended Dec. 31, 2004, on the back of strength in both its business and consumer operations. This is the second time the software companys revenue has breached the $10 billion mark; the first was in the same quarter a year ago. The results for the quarter under review included $2.2 billion in compensation expenses incurred in connection with the Employee Stock Option Transfer Program.
Operating income for the second quarter came in significantly higher at $4.8 billion, an increase of $3.3 billion over the same period in the prior year. Net income for the second quarter was $3.5 billion, with diluted earnings of 32 cents per share, exceeding the companys guidance by 4 cents and including stock-based compensation expense.
John Connors, Microsofts chief financial officer, who is leaving the Redmond, Wash., software company after 16 years, said the record revenue came from "across-the-board strength in both our business and consumer segments." "Our long-term approach to growing new businesses is paying off. Home and Entertainment delivered its first profitable quarter, and all three of the companys emerging businesses combined generated a nearly $700 million improvement in operating results compared to the second quarter of last fiscal year," he said in a statement released after the financial markets closed. Giving a breakdown of performance, Connors said the Server and Tools business grew 18 percent over the same quarter a year ago, with its SQL Server database software posting a 25 percent year-on-year revenue growth. Exchange 2003, which marked its one-year product launch anniversary during the quarter under review, had the fastest adoption of Exchange licenses ever, he said. The Home and Entertainment business also moved into the black, posting positive operating income on record revenue, while the Xbox business showed record software sales. "We also sold more consoles than our competitors during the critical holiday sales season in the United States, and increased Xbox Live membership to over 1.4 million members," Robbie Bach, Microsofts senior vice president of the Home and Entertainment group, said in a statement. Turning to the business outlook, Connors said that for the quarter ending March 31, 2005, management expected revenue in the range of $9.7 billion to $9.8 billion, with operating income of between $4.1 billion and $4.2 billion, including stock-based compensation expense. Diluted earnings are expected to be between 27 cents and 28 cents a share, again including stock-based compensation expense. For the full fiscal year to end in June 2005, management expected revenue in the range of $39.8 billion to $40.0 billion, with operating income of between $16.5 billion and $16.7 billion, including stock-based compensation expense, and diluted earnings per share of $1.09 and $1.11, including stock-based compensation expense, Connors said. Check out eWEEK.coms for Microsoft and Windows news, views and analysis.
Peter Galli has been a financial/technology reporter for 12 years at leading publications in South Africa, the UK and the US. He has been Investment Editor of South Africa's Business Day Newspaper, the sister publication of the Financial Times of London.

He was also Group Financial Communications Manager for First National Bank, the second largest banking group in South Africa before moving on to become Executive News Editor of Business Report, the largest daily financial newspaper in South Africa, owned by the global Independent Newspapers group.

He was responsible for a national reporting team of 20 based in four bureaus. He also edited and contributed to its weekly technology page, and launched a financial and technology radio service supplying daily news bulletins to the national broadcaster, the South African Broadcasting Corporation, which were then distributed to some 50 radio stations across the country.

He was then transferred to San Francisco as Business Report's U.S. Correspondent to cover Silicon Valley, trade and finance between the US, Europe and emerging markets like South Africa. After serving that role for more than two years, he joined eWeek as a Senior Editor, covering software platforms in August 2000.

He has comprehensively covered Microsoft and its Windows and .Net platforms, as well as the many legal challenges it has faced. He has also focused on Sun Microsystems and its Solaris operating environment, Java and Unix offerings. He covers developments in the open source community, particularly around the Linux kernel and the effects it will have on the enterprise.

He has written extensively about new products for the Linux and Unix platforms, the development of open standards and critically looked at the potential Linux has to offer an alternative operating system and platform to Windows, .Net and Unix-based solutions like Solaris.

His interviews with senior industry executives include Microsoft CEO Steve Ballmer, Linus Torvalds, the original developer of the Linux operating system, Sun CEO Scot McNealy, and Bill Zeitler, a senior vice president at IBM.

For numerous examples of his writing you can search under his name at the eWEEK Website at


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