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Server Revenues Help Drive Strong Quarter for Microsoft

In a weak economy, Microsoft Corp. reported strong earnings, largely on the back of growth in its server products and Windows 2000.

"We reported solid revenue and operating results this quarter, fueled by strong customer demand for our Windows 2000 and .NET Enterprise Server families," John Connors, Microsoft CFO, said in a statement Thursday after financial markets closed.

Microsoft brought in revenues of $6.13 billion for the quarter ending Sept. 30 -- a 6 percent increase over the $5.77 billion it reported in the year-ago quarter. Net income amounted to $1.28 billion after a $1.24 billion after-tax charge due largely to investment losses of about $980 million.

Up were sales of Windows 2000 Professional, Windows 2000 Server, Windows 2000 Advanced Server and the .NET Enterprise Servers led by SQL Server and Exchange Server. Down were sales of Microsoft's developer tools, Windows ME and Windows 98.

One of Microsoft's recent goals has been to increase the percentage of higher cost Windows 2000 Advanced Server sales among its total sales of Windows 2000 servers. Advanced Server costs more than twice as much as standard server and includes clustering and scalability capabilities beyond what Windows 2000 Server offers. The effort seems to be paying off.

Microsoft reported 20 percent sales growth in the Windows 2000 Server family over the year-ago quarter. "We were especially thrilled to see strong customer demand for Windows 2000 Advanced Server, which sold twice as many units as it did the previous year," Brian Valentine, Microsoft's senior vice president for the Windows division, said in the statement.

Sales of the .NET Enterprise Servers increased by about 30 percent over the same quarter in 2000. The comparison is basically to an entirely different and broader product set. Microsoft released updated versions of nearly all of its .NET Enterprise Servers in late September 2000 or later. Some of them were brand new products, including Application Center 2000, Mobile Information Server 2001 and Content Management Server 2001.

Overall enterprise software and services revenue grew 15 percent over the 2000 quarter -- from $1.04 billion to $1.19 billion. Of that, enterprise services revenues were another highlight, increasing 27 percent.

Revenues for developer tools, training and certification, and other services declined from the September quarter of 2000, Microsoft reported. The company attributed the decline to the lull as the industry awaits the release of its flagship developer toolset, Visual Studio .NET, which is expected to ship early next year. Visual Studio .NET replaces Visual Studio 6.0 and incorporates many of the technologies of Microsoft's new .NET platform.

For the quarter ending Dec. 31, Microsoft anticipates revenues of $7.1 billion to $7.3 billion and operating income of $2.9 billion to $3 billion. For the year, ending in June 2002, Microsoft anticipates revenues of $28.4 billion to $29.1 billion.

About the Author

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

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