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Microsoft profits up on strong server software sales

Microsoft profits up on strong server software sales

Microsoft has announced a profit jump of 24 per cent in the first quarter of fiscal 2006 as compared to the same quarter last year based on strong sales in its core platform software.

The company attributed the growth to the solid performance of its core platform software, including SQL Server, which had 15 per cent year-over-year growth, Exchange and Windows Server. The software and tools division saw a 13 per cent growth to $US2.53 billion over the same quarter in 2005. Microsoft also cited strong growth in PC and server shipments.

"We are delighted that the value proposition of SQL Server continues to result in such strong product demand," Microsoft CFO, Chris Liddell, said. Microsoft will ship SQL Server 2005 on November 7.

The company, however, continues to struggle with adoption of its Licensing 6.0 and Software Assurance volume licensing. Unearned revenue, which is a key indicator of renewals for Software Assurance contracts, fell by about 4 per cent from $US8.8 billion from $US9.16 billion from the fourth quarter of fiscal 2005.

Microsoft's chief accounting officer, Scott Di Valerio, said the drop matched expectations and it represented seasonal purchase patterns for licensing contracts. He noted that the $US8.8 billion was a 13 per cent increase over unearned revenue from the same quarter in 2005 and said Microsoft still expects to see 8 per cent to 10 per cent growth through fiscal 2006.

Microsoft said renewals for its Enterprise Agreements, which cover licensing for a range of Microsoft products and includes Software Assurance, was between 66 per cent and 75 per cent.

Microsoft's net income and diluted earnings per share for the first quarter were $US3.14 billion and $US0.29 per share, including a $US0.02 per share charge for the RealNetworks settlement. For the previous year, net income and diluted earnings per share were $US2.53 billion and $US0.23 per share, including a charge of 3 cents per share for the Novell settlement.

The company's revenue showed a 6 per cent growth to $US9.74 billion over the same quarter last year, while operating income showed a 16 per cent growth to $US4.4 billion, excluding the $US361 million settlement with RealNetworks. With the adjustment, operating income was $US4 billion.

Microsoft, which has been locked in a public battle with Google over search and services technology, said display advertising revenue from MSN was up 20 per cent. Revenue from search advertising, however, was down although Di Valerio did not say by how much. Both Google and Yahoo reported improved search advertising sales in the quarter.

The software maker also reported that Internet access revenue declined 30 per cent as more and more users switch from dial-up to broadband access, which MSN does not sell.

The quarter was also marked by a realignment of Microsoft's corporate structure from seven business units into three large divisions.

The company also announced that veteran executive, Bob Muglia, was the new senior vice-president of the company's Server and Tools Business. He replaces Eric Rudder.

During the quarter Microsoft delivered the first beta of its next generation client operating system, Vista, which will ship in the summer of 2006, and previewed its Office 12 platform due to ship at the end of next year. Those two product families have historically represented the bulk of Microsoft's revenues.

The Information Worker division, which includes Office, showed only 4 per cent year-over-year growth, but that was ahead of projections, according to Microsoft.

In the quarter, the company also released its first backup software with System Center Data Protection Manager 2006 and shipped Microsoft Office Small Business Accounting and Small Business Management.

The company also acquired VoIP provider, Teleo, email security specialist, Frontbridge, and identity management firm, Alacris.

For the second fiscal quarter, which ends December 31, Microsoft forecasts revenue in the range of $US11.9 billion to $US12.0 billion, and operating income in the range of $US4.6 billion to $US4.7 billion.


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