Microsoft Revenue Hits $10 Billion, Earnings Down

By Peter Galli  |  Posted 2004-01-22 Print this article Print

Microsoft reported record revenues for its second fiscal quarter on strong sales of Windows XP and the Office productivity suite. However, operating income dropped year-to-year.

Microsoft Corp. on Thursday reported a new record in quarterly revenue, posting a 19 percent rise to breach the $10 billion mark in the second quarter of its fiscal year to end-December 2003. In this latest quarter Microsoft, of Redmond, Wash., reported revenue of $10.15 billion, 19 percent higher than the $8.54 billion reported for the same quarter last year. John Connors, Microsofts chief financial officer, chalked the strong results up to strong consumer and corporate demand for PCs, which continued to exceed Microsofts expectations and resulted in solid double-digit revenue growth for Windows XP and Office.
"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," Connors said in a statement released after the financial markets closed.
But operating income for the second quarter under review was significantly lower than the same time last year, coming in at $1.48 billion for the period versus $2.23 billion in the prior year. Net income and diluted earnings a share were also lower at $1.55 billion and $0.14 for the second quarter, respectively. By comparison, net income and earnings per share for the second quarter of 2003 were $1.87 billion and $0.17 per share, respectively, including after-tax stock based compensation expense of $709 million or $0.07 per share; a net $282 million or $0.03 a share charge for investment impairments; a $126 million or $0.01 per share tax benefit from the reversal of previously accrued taxes; and $141 million or $0.01 per share legal charge related to the state antitrust and unfair competition class action lawsuits. Connors said the results for the second quarter of 2004 included after-tax stock based compensation expense of $2.17 billion or $0.20 a share, of which a taxed $1.48 billion or $0.14 per share related to the completion of the employee Stock Option Transfer Program. Information Worker revenue grew 27 percent over the previous year on the back of strong adoption of Office 2003 by consumers and small businesses, which "drove sales in the retail and system-builder channels to surpass expectations. Customers acquiring Office during the quarter included Eli Lilly and Company, Safeco Corporation, and Ticketmaster," Connors said. Connors also offered the following guidance for the current financial quarter to March 31: revenue of between $8.6 billion and $8.7 billion was expected, with operating income of $3.0 billion and $3.1 billion, including stock-based compensation expense of approximately $750 million. Diluted earnings per share are expected to be in the range of $0.23 and $0.24, including equity compensation expense of approximately $0.05. For the full fiscal year to end June 2004, Microsoft expects revenue of between $35.6 billion and $35.9 billion; operating income of $10.3 billion to $10.6 billion, including an stock-based compensation expense of some $5.7 billion. Diluted earnings in the range of $0.82 and $0.83 a share are expected, Connors said.
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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