Microsoft Earns $5.9B in Q4, Despite PC Sales Dip

Microsoft reported its fiscal fourth-quarter results today, beating expectations, even with a notable lag in Windows revenues.

The $0.69 earnings per share reported for the quarter, which ended on June 30, 2011, exceeded financial analyst estimates of about $0.58. Microsoft reported revenue for the quarter at $17.4 billion, representing an increase of 8% compared with last year's Q4 revenue result. The net earnings result for the quarter was $5.9 billion, up 30%. Year over year, Microsoft pulled in $69.9 billion, up 12%.

The one surprising moment for this quarter came from Microsoft's Windows and Windows Live Division, which brought in $4.7 billion of revenue. That figure represents a 1% decrease in revenue for the quarter, and a 2% decrease year over year. Microsoft described some of the factors associated with that result in its earnings release. Consumer PC sales declined about 2% during the quarter, influenced by plummeting netbook sales, which dropped 41%. In contrast, business PC sales were up 8% during the quarter.

Peter Klein, Microsoft's chief financial officer, said during an earnings call that "enterprise deployments [of Windows 7] have increased almost 50 percent since March." Microsoft's overall Windows revenues are being affected by a sales shift to less developed markets, where selling prices are lower. Bill Koefoed, Microsoft's general manager of investment relations, said during the earnings call that over 40 million PCs (about half of all PCs sold) were shipped during the quarter to emerging markets. Koefoed claimed that 25 percent of enterprises have deployed Windows 7.

The Microsoft Business Division, which oversees Microsoft Office, SharePoint, Exchange, Lync and Dynamics products was the star showing for Q4. That division brought in revenue of $5.8 billion for the quarter. Microsoft is claiming that Office 2010 is its "fastest-selling version" of the productivity suite yet, at 100 million licenses sold. However, consumer spending on Microsoft Business Division products decreased 8% in the quarter due to a decrease in consumer spending on PCs. Business spending, in contrast, was up 12%, mostly due to Microsoft Office 2010 sales, volume licensing purchases and a 19% increase in Dynamics revenue.

The Server and Tools Division, which develops Windows Server, Windows Azure, SQL Server, System Center and Visual Studio products, drew $4.6 billion in revenue for the quarter. Revenue for that division was up 12% compared with last year's Q4 result. Microsoft credited sales of Windows Server, SQL Server and its enterprise Client Access Licenses for the division's financial boost. Koefoed said that premium sales of SQL Server grew almost 20 percent.

The Entertainment and Devices Division brought home $1.5 billion in revenue to Microsoft in Q4, led by Xbox 360 entertainment console sales (up 18% in the quarter) and Xbox Live (with about 35 million members). Microsoft shipped 1.7 million Xbox 360 devices during the quarter. Windows Phone 7 is also a part of this division, but Microsoft did not provide a revenue breakdown for it.

Finally, the Online Services Division drew $662 million for the quarter, but it was offset by an operating loss of $728 million. There was no surprise here because Microsoft continues to pour money into chasing No. 1 search provider Google. The Online Services Division includes Microsoft's Bing search and adCenter online advertising platform, as well as the MSN portal.

Microsoft actually described a search and display ad revenue growth of 20% for its fiscal fourth quarter. However, that revenue came with a cost. Microsoft pointed to "challenges associated with optimizing the adCenter platform for a new mix and volume of traffic from the combined Yahoo and Bing properties." Yahoo CEO Carol Bartz had alluded to this adCenter problem in describing Yahoo's revenue decline in the second quarter.

Microsoft and Yahoo had established a search-advertising partnership in July 2009 in which Microsoft's Bing search engine would power Yahoo search portals. Advertising was consolidated under Microsoft's AdCenter platform. So far, the Microsoft and Yahoo search integration has mostly occurred in the U.S. and Canadian markets, with Microsoft planning a later global expansion once its U.S. integration efforts are perfected.

About the Author

Kurt Mackie is senior news producer for 1105 Media's Converge360 group.


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