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Microsoft Revenue Train Rolled Along in Fiscal 2005

Microsoft posted strong revenue and profit growth in the quarter and fiscal year that ended June 30 as PC and server growth fueled software sales, but growth remained soft in the important Information Worker segment that includes Microsoft Office.

The company's financial results announcement after markets closed Thursday revealed net income growth of 38 percent in the fourth quarter to $3.7 billion. For the full year, net income grew 50 percent to $12.25 billion compared to $8.17 billion in fiscal 2004. The profits came on revenues of $10.16 billion for the quarter and $39.8 billion for the year.

“We closed out a record fiscal year with strong revenue growth in the fourth quarter driven by healthy, broad-based demand across all customer segments and channels,” Chris Liddell, chief financial officer at Microsoft, said in a statement.

“While continuing to invest in the business, we also returned $44 billion to investors through share repurchases and dividends during the fiscal year. These results provide solid momentum heading into fiscal 2006, which is shaping up to be a strong year for growth and investment. We expect double digit revenue growth next year, kicking off the strongest multi-year product pipeline in the company’s history,” Liddell said in a reference to the planned rollouts between now and 2007 of SQL Server 2005, Xbox 360, the Windows Longhorn client, Office 12 and then the Windows Longhorn server.

While MSN, Microsoft Business Solutions, Home and Entertainment and Mobile and Embedded are all significant and growing businesses, more than 80 percent of Microsoft's revenues and even more of its profits come from its Client division covering Windows desktops; Information Worker division covering Office; and Server and Tools division. For the quarter, all three grew. Server and tools posted the strongest growth at 16 percent to $2.7 billion. Client revenues grew 10 percent to $3 billion. Information Worker revenues inched up by 2.5 percent to $2.9 billion.

The strengthening of the Euro versus the U.S. dollar helped Microsoft in the fiscal year. The company said foreign exchange rates contributed about $210 million, or 2 percentage points growth in total revenue, for the quarter.

Meanwhile, legal costs increased, the company said, due to charges of $756 million for antitrust-related claims, including $626 million for the recent settlement with IBM.

For the 2006 fiscal year, which began July 1, Microsoft told investors to expect another increase in revenue as it launches SQL Server 2005 and related products and the Xbox 360 video game console. Microsoft projects revenues between $43.7 billion and $44.5 billion, with operating income in the range of $18.3 billion to $18.8 billion.

The releases of the Windows "Longhorn" client and Office 12 aren't expected until the second half of calendar 2006, which puts them in Microsoft's 2007 fiscal year.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.