News

Microsoft Reports 'Record' 3Q Revenue

• By Kurt Mackie
• April 22, 2010

Microsoft today announced "record" overall revenue of $14.5 billion in its fiscal third quarter.

The revenue was 6 percent higher than last year's 3Q revenue figure. Net income for the quarter (which ended on March 31, 2010) was $4 billion, up from $3 billion in the same period last year.

Windows 7 sales drove revenue for the company, while Microsoft continued to show an operating income loss in its Online Services Division. Other business segments had relatively flat revenues quarter to quarter. For instance, the Server and Tools Division had a 2 percent revenue increase in the third quarter compared with the same period last year.

The star of the quarter was the Windows and Windows Live Division. Microsoft reported $4.4 billion revenue in the third quarter for that division -- a 28 percent increase compared with last year's 3Q revenue result.

"Strong demand for Windows 7 is the primary contributor to our performance," explained Peter Klein, Microsoft's chief financial officer, in a Webcast discussing the financial results. "As evidence of that strong demand, an internal and external check showed that over 10 percent of all PCs worldwide are already running Windows 7."

Microsoft released Windows 7 in late October. Klein suggested that the 10 percent adoption rate of Windows 7 after about six months meant that Microsoft still had a yet-to-be-tapped market on its hands.

Overall, Microsoft is seeing continued strong spending on its products from consumers, according to Bill Koefoed, Microsoft's general manager of business relations. Spending by small and midmarket businesses rose more than 15 percent year over year, he added, although he was more cautious about future enterprise spending.

"Within the enterprise segment, we saw the beginning of a recovery and IT hardware spend, but as we have discussed on past calls, we continue to see lengthened sales cycles," Koefoed said.

Windows licensing grew 35 percent for consumers and 15 percent for businesses. Koefoed said that the 15 percent figure leads Microsoft to believe that a business PC refresh cycle has begun. The business PC refresh cycle will continue into Microsoft's 2011 fiscal year, according to Klein.

Annuity revenue in the Server and Tools Division was relatively flat, representing about 50 percent of that business, according to Koefoed. He described good results for Microsoft's management and Windows server products, saying that "System Center server revenue grew over 20 percent and the Windows Server premium mix remains over 20 percent this year."

The Online Services Division, which includes Bing and the MSN Web portal, generated revenue but it was offset by a $713 million loss in operating income. Still, Koefoed said that Bing has had 10 consecutive months of market growth since its launch. Microsoft expects to complete its search partnership deal with Yahoo in the United States by the end of this calendar year and by the end of 2012 globally. Microsoft will start seeing revenue from the Yahoo partnership in the second half of this fiscal year, according to Klein.

Koefoed depicted progress in Microsoft's overall software-as-a-service and cloud computing push. He said that Microsoft now has 40 million paid seats for its commercial online services.

The Webcast and Microsoft's fiscal third-quarter financial results can be accessed at the Microsoft Investor Relations Web portal here.