Enterprise Boost Helps Microsoft Shatter Financial Expectations

Microsoft can talk up "devices and services," the consumerization of IT and BYOD all it wants, but it can thank enterprises for its unexpected surge in revenues and profits.

Overall, the company yesterday reported revenues for the first quarter of its 2014 fiscal year were $18.53 billion, nearly 5 percent higher than the $17.7 billion analysts had expected and up 16 percent year-over-year, while posting earnings of 62 cents per share, compared with consensus estimates of 53 cents per share. Moreover, Microsoft gave a positive outlook for the current quarter which ends Dec. 31. That was a welcome relief to investors after Microsoft reported one of its most disappointing quarters back in July.

The lift came primarily from commercial revenues, which added to $11.2 billion for the quarter, up 10 percent year-over-year. Noteworthy bright spots were sales of SQL Server up 30 percent and sales of its Office products increased 11 percent with Exchange, Lync and SharePoint all growing 30 percent. Server and tools sales increased 12 percent and commercial cloud revenues increased 103 percent.

Improvements in Microsoft's enterprise revenues were especially noteworthy given the fact that IBM and Oracle both fell short during the same period. Microsoft's stock was up 6 percent midday today on its better-than-expected performance along with the positive forecast for the current quarter.

In a category Microsoft calls Commercial Other, which include enterprise cloud revenues from Windows Azure and Office 365, revenues this quarter could reach $1.9 billion on the high end of the forecast, Microsoft said. Revenues in that category this quarter of $1.6 billion were up 28 percent, which the company said reflects increased demand for its cloud services.

Meanwhile, consumer device revenue of $7.46 billion showed modest growth of 4 percent, though device and consumer licensing was down over 7 percent. Microsoft said that was better than it had expected going into the quarter, where it expected a decline in the mid-teens. In Microsoft's struggling Windows business, which continues to be hammered thanks to the growth of tablets, the commercial business held its own.

While non-Pro Windows revenue declined 22 percent, Windows OEM Pro revenue grew 6 percent, Microsoft said. Microsoft revealed Office 365 Home Premium subscriptions have now hit the 2 million mark.

After taking a $900 million charge last quarter on unsold Surface inventory, Microsoft said Surface revenue this quarter doubled to $400 million over the prior period. With this week's release of the new Surface 2 and Surface Pro 2, Microsoft CFO Amy Hood believes this quarter will show further improvements, noting that customers were delaying purchases in anticipation of the new releases. "With Surface, we are making progress with better end market executions," Hood said.

Now that the new line of Surface hardware is shipping along with Windows 8.1, Windows Server 2012 R2, System Center 2012 R2 and upgrades to the Windows Azure portfolio, we'll get a better sense of how enterprises and consumers alike are embracing these new offerings  in three months from now when Microsoft reports its next quarterly results.

Posted by Jeffrey Schwartz on 10/25/2013 at 11:36 AM