Skip to main content
Microsoft Q3 FY2004 Highlights

Yesterday afternoon, Microsoft announced results for its fiscal 2004 third quarter, which ended March 31, 2004. The company reported quarterly revenues of $9.18 billion, up 17 percent year over year. Operating income was $1.28 billion.

Three of Microsoft?s seven business divisions--Client, Information Worker and MSN--posted operating profits. In the previous quarter five divisions, including MSN, lost money. This is the second consecutive quarter Microsoft?s server division posted losses.

In January, Microsoft had projected revenue between $8.6 billion and $8.7 billion and operating income between $3 billion and $3.1 billion, which includes $750 million in employee stock compensation. Earnings-per-share estimate was 23 cents to 24 cents, including stock compensation of 5 cents.

Not surprisingly, Microsoft set aside $1.89 billion (after-tax amount) for its settlement with Sun and European Union fine. I blogged about Microsoft?s ongoing settlement strategy here, here, here and here.

Microsoft continued to reap huge gains from unearned revenue, the majority derived from volume licensing. Microsoft now sells upgrades to customers that buy in volume under subscription-like mechanisms Software Assurance or Enterprise Agreement. Businesses pay Microsoft upfront, annually, under two- or three-year contracts for software. Microsoft realizes the sales as unearned revenue that is realized each quarter. Unearned revenue accounted for 24 percent of revenue, compared to 22 percent the previous quarter and 26 percent a year earlier. Looking ahead, Microsoft expects that only between 10-30 percent of Upgrade Advantage subscribers would renew contracts as Software Advantage, which added $1.1 billion revenue during fiscal 2004. During a conference call with analysts, Microsoft CFO John Connors warned that the Upgrade Advantage problem would have greatest impact on the Information Worker and Server and Tools divisions.

Microsoft issued guidance for its fiscal fourth quarter: Revenue between $8.9 billion and $9 billion and operating income between $2.8 billion and $2.9 billion, which includes $750 million in employee stock compensation. Earnings-per-share estimate is 23 cents, including stock compensation of 5 cents.

For the next fiscal year, ending June 30, 2005, projected revenue is in the $37.8 billion-$38.2 billion range. Operating income projection is $15.9 billion to $16.3 billion range; the estimate includes stock compensation of $2.5 billion. Earnings-per-share estimate: $1.16 to $1.18, including 35 cents for stock compensation. Microsoft's fiscal year ends June 30.

Client revenue grew 16 percent year over year to $2.92 billion, with operating income of $1.6 billion. Microsoft benefited from strong PC shipments--up 14 percent year over year during the quarter. The company expects PC shipments would grow in the low teens during its fourth fiscal quarter. Despite strong revenue growth, operating profit declined 16 percent year over year.

Server and Tools revenue topped $2.17 billion, a 19 percent year-over-year increase, but an operating loss of $635 million. In April 2003, Microsoft launched Windows Server 2003, which sold briskly during the quarter. Microsoft has been aggressively targeting the large number of Windows NT 4 Server holdouts; Jupiter Research surveys show that 43 percent of bigger businesses run the eight-year-old server software. Microsoft estimated server sales growing 17 percent year over year, with Windows Server sales up 25 percent.

Information Worker revenue increased 18 percent to $2.74 billion, with an operating profit of $1.93 billion. OEM licensing sales soured 35 percent, driven by Office 2003, which shipped in October. Volume-licensing sales had been expected to stay pretty steady as many customers interested in the product had already paid for their upgrades under Software Assurance.

Microsoft Business Solutions saw year-over-year growth of 4 percent to $153 million, with an operating loss of $65 million. Microsoft attributed much of the growth to licensing sales of Navision and Business Contact Manager. BCM is a client-relationship management add-on to Outlook that ships with three of the six Office 2003 versions. I would consider BCM a direct competitor to ACT! and Goldmine, so over-time sales could be significant. Early BCM success could merely be tied to strong out-of-the-gate Office 2003 sales. If Microsoft can sustain sales, BCM could prove a low-end CRM replacement, the way Outlook eventually drove a large number of desktop contact managers out of the market.

MSN revenue grew 16 percent year over year, to $591 million, with an operating profit of $107 million. Advertising revenue grew by $100 million, or 43 percent. But a significant chunk came from paid search, where Microsoft relies on competitors for services. Earlier today, Microsoft released MSN Messenger 6.2.

Mobile and Embedded Devices climbed to $61 million from $46 million a year earlier, a 33-percent increase, but with an operational loss of $38 million.

Home and Entertainment revenue grew 17 percent to $530 million, but with an operational loss of $209 million. Xbox console sales jumped 30 percent year over year.


Popular posts from this blog

Mainframe to Mobile

Not one of us has a clue what the world will look like in five years’ time, yet we are all preparing for that future – As  computing power has become embedded in everything from our cars and our telephones to our financial markets, technological complexity has eclipsed our ability to comprehend it’s bigger picture impact on the shape of tomorrow.

Our intuition has been formed by a set of experiences and ideas about how things worked during a time when changes were incremental and somewhat predictable. In March 1953. there were only 53 kilobytes of high-speed RAM on the entire planet.

Today, more than 80 per cent of the value of FTSE 500* firms is ‘now dark matter’: the intangible secret recipe of success; the physical stuff companies own and their wages bill accounts for less than 20 per cent: a reversal of the pattern that once prevailed in the 1970s. Very soon, Everything at scale in this world will be managed by algorithms and data and there’s a need for effective platforms for ma…

An Ockham of Gatwick

The 13th century theologian and philosopher, William of Ockham, who once lived in his small Surrey village, not so very far from what is today, the wide concrete expanse of Gatwick airport is a frequently referenced source of intellectual reason. His contribution to modern culture was Ockham’s Razor, which cautions us when problem solving, that “The explanation requiring the fewest assumptions is most likely to be correct;” sound advice which constantly proves to be true.

A week further-on since Britain’s second busiest airport was bought to a complete standstill by two or perhaps two hundred different drone sightings, it is perhaps time to revisit William of Ockham’s maxim, rather than be led astray by an increasingly bizarre narrative, one which has led Surrey police up several blind alleys with little or nothing in the way of measurable results.

 Exploring the possibilities with a little help in reasoning from our medieval friar, we appear to have a choice of two different account…
A Christmas Tale

It’s pitch blackness in places along the sea wall this evening and I'm momentarily startled by a small dog with orange flashing yuletide antlers along the way. I’m the only person crazy enough to be running and I know the route well enough to negotiate it in the dark, part of my Christmas exercise regime and a good way of relieving stress.

Why stress you might ask. After all, it is Christmas Day.

True but I’ve just spent over two hours assembling the giant Playmobil ‘Pony Farm’ set when most other fathers should be asleep in front of the television.

I was warned that the Playmobil ‘Pirate Ship’ had driven some fathers to drink or suicide and now I understand why. If your eyesight isn’t perfect or if you’ve had a few drinks with your Christmas lunch then it’s a challenge best left until Boxing day but not an option if you happen to have a nine year old daughter who wants it ready to take horses by tea time.

Perhaps I should stick to technology but then, the instruc…