MS Enterprise Apps Show Earnings Success

Microsoft Business Solutions is posting profit sooner than predicted, auguring well for the success of its next-generation Dynamics suite.

Microsoft Business Solutions, the applications division of Microsoft, is out of the red and into the black.

The group posted $242 million in sales Jan. 26 for its second quarter of 2006—a $10 million profit for the heretofore losing division. For the second-quarter period last year, MBS lost $17 million on sales of $207 million.

The earnings burst came ahead of schedule for MBS.

During its fiscal 2005 full-year report last July, Microsoft said it expected revenue growth of between 10 and 11 percent for MBS for the 2006 fiscal year, but that the gains "werent likely" in the coming year, officials said.

Thursdays gains represented 17 percent growth over the same quarter a year ago.

/zimages/4/28571.gifClick here to read more about the Microsoft Business Solutions group.

This is critical timing for MBS given its current efforts to rearchitect a next-generation suite of software, Dynamics, to bring together five separate code bases—Great Plains, Solomon, Navision, Axapta and Microsoft CRM—into a single service-enabled suite.

Whether or not Dynamics succeeds will be an indicator of Microsofts ability to play successfully in the applications space over the long haul.

Dynamics will also bring deeper ERP (Enterprise Resource Planning) integration with other Microsoft technologies, particularly Office.

Microsoft officials attributed MBS second-quarter 14 percent license revenue growth to the launch of several Dynamics lines: GP (formerly Great Plains), SL (formerly Solomon), and CRM 3.0; and in particular, CRM, since its integrated with Office.

/zimages/4/28571.gifRead more here about Microsofts integrated Dynamics suite.

Analysts agree that the Dynamics strategy is working.

"Microsofts contention is, and its probably true, that there is a huge and growing interest in CRM [based on] whats on the desktop already. Now that MBS can deliver that theyre able to take it to the bank," said Joshua Greenbaum, principal of Enterprise Applications Consulting, in Berkeley, Calif. "MBS in general is showing that its overall strategy of tying MBS closer to the Office worker suite is where Microsoft is getting its traction in the market … and its paying off."

The irony is that as MBS gathers steam, it will compete further with the likes of SAP AG, which has a midmarket offering. SAP is itself tapping into the Office technology through Mendocino, a joint development project with Microsoft that will link MySAP ERP functionality with Office.

"The good news is that Microsoft has cracked the nut," Greenbaum said. "The bad news is, the more successful they are with making the story public, the more they show that the SAP product line is a reasonable option as well."

Jim Shepherd, a research analyst with AMR Research in Boston, also attributed Microsofts second-quarter success to its deeper integration to Office.

"From the beginning, the whole logic of Microsoft entering this business was the idea of combining the Office and ERP applications, and clearly thats got people very excited," Shepherd said. "I think thats why they had a lot of momentum with CRM; people got to see a business application fully integrated with Office."

Thats also why people are so excited by Mendocino, according to Shepherd. "The more Microsoft comes out with Dynamics ERP, its going to drive a lot of business for them," he said. "Its a real differentiator for them."

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