Microsoft Reports Revenue Surge

Software giant attributes better-than-expected results to broader than anticipated customer adoption of its licensing programs.

Microsoft Corp. on Thursday reported a 26 percent surge in revenue to $7.75 billion for the quarter ended Sept. 30 compared with the same quarter a year earlier, citing broad customer adoption of its multiyear volume licensing programs for the gain.

Operating income for the quarter, which is also its first fiscal quarter of the year, came in 40 percent higher at $4.05 billion, compared with $2.90 billion in the same period last year.

Net income and diluted earnings a share both more than doubled to $2.73 billion and $0.50 from a year earlier--but last years figure included an after-tax charge for investment impairments of $1.22 billion.

John Connors, Microsofts chief financial officer, said in a statement that the results exceeded even Microsofts expectations, attributing them to broader than anticipated customer adoption of its licensing programs.

His comments contradict what many analysts have been saying recently and the customer backlash to the latest licensing plans that forced Microsoft to alter the plans. Analysts have recently said they believe as many as two-thirds of Microsofts volume licensing customers did not sign up for the new plan.

But Connors said Thursday that the "results for the first quarter were exceptionally strong. We saw broader customer adoption of our licensing programs than we anticipated, as customers recognized the value of entering into long-term licensing agreements for our products."

Analysts have also pointed out that while the income derived from customers moving to new li-cense agreements will be rolled out equally over the next two years, as they pay upfront for two years worth of software, the number of users moving by the July 31 deadline had pushed revenue higher this quarter.

This licensing strength led to solid growth for Windows XP, Office XP and .Net Enterprise Servers, Connors said, but he cautioned that the global economic outlook continues to be uncertain.

Continued strong sales of Windows XP saw revenue growth rise 33 percent, with Windows XP Pro, the business version, accounting for 63 percent of all operating system sales, Microsoft said.

More than 67 million copies of Windows XP have now been sold through retail and on new computers since its October 2001 launch, Connors said, adding that Microsoft also rolled out the first service pack for Windows XP during the quarter.

Revenue from information worker software grew 26 percent on the back of sales of Office XP through multiyear licensing programs. Microsoft said new customers buying Office over the quarter included Chevron-Texaco, Lockheed Martin and MetLife.

Server platform revenue was also 14 percent better, with customers continuing to buy more servers through multiyear licensing programs. Windows 2000 Server revenue growth was fueled by strong volume licensing sales and continued market share gains by Intel-based server hardware over proprietary Unix products, Microsoft said.

And more than 200,000 customers have signed up, through the product preview program, to receive Microsofts upcoming Windows .Net Server 2003 products within 60 days of availability.

Microsoft officials also said the company expects revenue for the current quarter, to end in December, to be in the range of $8.5 billion to $8.6 billion, with operating income expected at between $3.2 billion and $3.3 billion and diluted earnings per share to be either $0.45 or $0.46 for the fiscal quarter.

For the full fiscal year to end June 2003, it expects revenue of between $32.2 billion and $32.6 billion, operating income of $14.1 billion to $14.4 billion, and diluted earnings per share of between $1.89 and $1.95, officials said.