Microsoft posted revenues of $16.04 billion for the fiscal fourth quarter, surpassing analyst estimates. Microsoft reported some 175 million Windows 7 licenses sold so far.
Microsoft posted revenues of $16.04 billion for its fiscal
fourth quarter, surpassing analyst estimates. Revenue across its key divisions,
including Windows and Online Services, also improved.
Heading into the earnings call, analysts had predicted
Microsoft would post revenues of $15.2 billion. The stronger-than-expected
revenues suggest that the economy-or at least the part of it with a need for
software-is indeed on the mend after a long period of global recession. During
the same quarter in 2009, facing plunging software sales and a freeze in
business spending, Microsoft had reported revenues of $13.1 billion.
"We had strong demand and strong sales execution," Microsoft Chief
Financial Officer Peter Klein told analysts and media during a July 22
conference call. "We certainly feel good about the traction of our
Buoyed by strong sales of Windows 7, Microsoft's Windows
division reported revenues of $4.5 billion, up from $3.2 billion during the
same quarter last year. Since its October 2009 launch, Microsoft says, some 175
million Windows 7 licenses have been sold.
Revenue for the Business division, which recently launched Office
2010, experienced a year-over-year rise from $4.6 billion to $5.3 billion.
Although revenue for the company's Online Services division increased
year-over-year from $501 million to $565 million, its quarterly losses
steepened to $696 million.
Microsoft's advertising revenue climbed 19 percent
year-over-year, to $494 million. The
company hopes to have the major components of its online search-and-advertising
deal with Yahoo
, which involves porting Yahoo's U.S. advertisers and
publishers onto Microsoft's AdCenter platform, in place by the end of 2010.
Microsoft's general and administrative costs dipped slightly
during the quarter, to $987 million. Since 2009, in an effort to slash costs, Microsoft
has terminated a variety of legacy projects and cut more than 5,000 employees
from its payroll.
Heading into the earnings call, analysts expected Microsoft
to benefit from shipments of business software, which had proven anemic as both
the enterprise and SMBs slashed IT budgets in an effort to weather the recent
recession. For months, many of those same analysts predicted that a combination
of aging IT infrastructure and pent-up demand for next-generation software
would eventually translate into more robust sales.
"We expect to see further evidence that an enterprise PC and
server replacement cycle is upon us," Katherine Egbert, an analyst with
Jefferies & Co., wrote in a July 19 research note. "Recent reports by Intel
and others indicate that the much-anticipated PC and server upgrade cycle has
But Microsoft is unlikely to see substantial revenue from
projects outside of its core software properties, according to Egbert, at least
in the short- to medium-term.
"We think it's too early to see a boost from Kinect
(formerly Project Natal) units, which are slated to start shipping in early
November," Egbert wrote. "We don't see Bing search or Azure cloud services add
meaningfully, despite recent market share gains and customer wins." Nor did
Egbert expect to see any upside in revenue from Office 2010, "although a
[fiscal year end] wave of volume license agreements that include Office 2010 could
benefit unearned revenue."
During the July 22 earnings call, Microsoft executives also
seemed vague about the potential impact of tablet PCs on the overall tech
market. Apple's iPad has currently dominated the space, although other
manufacturers are planning tablets running a variety of operating systems.
"We think tablets are very interesting," Klein said. "Tablets
I think are interesting and great because they enlarge the overall [PC]
opportunity and remind us that there are lots of interesting scenarios that we
continue to work on."
During a July 12 keynote address at Microsoft's Worldwide Partner
Conference, CEO Steve Ballmer suggested that the company would continue to
devote substantial resources to providing cloud-based services to businesses: "There's
no question that Microsoft has chosen to embrace that path together with all of
you, and there's no question that there's more to do."
Specifically, Microsoft is focused on providing what it
calls "IT as a service," offering Azure and other cloud-based products as a way
for businesses to fulfill multiple functions. But with the cloud in many ways
still in its relative infancy, and a significant percentage of businesses still
unwilling to take their IT infrastructure off-premises, Microsoft still very
much needs platforms such as Windows 7 to provide the lion's share of its
"On the Azure side, it's early," Klein said during the
earnings call. "It's not material to the financials this year."
Later in 2010, Microsoft will also face another challenge
when it releases Windows Phone 7, its attempt at resetting its smartphone
operating-system franchise. Apple recently announced quarterly revenues of
$15.7 billion, largely on the strength of products such as the iPhone and iPad.