Microsoft Q4 growth stemmed from servers, Xbox

Microsoft posted Q4 revenue of $10.2 billion, up 9 percent over the same period last year.

Microsoft posted solid growth for its fiscal fourth quarter 2005, highlighted by sales of server software. Revenue for the software maker's quarter ended June 30 was US$10.2 billion, a 9 percent increase over the same period last year, when Microsoft earned US$9.3 billion.

Net income for the period was US$3.7 billion, or US$0.34 per share, which included US$0.05 in legal charges and US$0.09 in tax benefits. This compares to net income of US$2.69 billion, and US$0.25 per share for the year-ago quarter, an amount that included a US$0.02 tax benefit.

Analysts surveyed by Thomson First Call had expected Microsoft to post earnings per share of US$0.31, excluding special items. Without the legal charge and tax benefit, Microsoft would have earned US$0.30 per share, but the reported US$0.34 figure included a charge for stock-based compensation that was not specified in Microsoft's press release. Thomson First Call representatives did not return calls seeking clarification.

In a press statement, Microsoft attributed its quarterly revenue growth to strength in its server and tools business, as well as rapid customer adoption of its database, SQL Server, which the company said had sales growth of 16 percent compared to the third quarter of this year.

Strong sales of the vendor's Xbox electronic game console also contributed to 22 percent growth for Microsoft's Home and Entertainment division, according to a press statement.

For the year, Microsoft had revenue of US$39.8 billion, an 8 percent increase over the US$36.8 billion reported in revenue last year. Net income for 2005 was US$12.3 billion, or earnings per share of US$1.12, which included legal charges of US$0.13 and tax benefits of US$0.09.

Looking forward, Microsoft predicted that it would earn in the range of US$9.7 billion and US$9.8 billion, with earnings per share in the range of US$0.29 and US$0.31 for the first quarter, which ends Sept. 30.

For the fiscal year that ends June 30, 2006, the company expects revenue to be in the range of US$43.7 billion to US$44.5 billion, with earnings per share in the range of US$1.27 and US$1.32.

On a webcast Thursday, Microsoft Chief Financial Officer (CFO) Chris Liddell said that all global geographic segments experienced double-digit revenue growth except for Japan, which continues to grow more slowly than other parts of the world, with growth rates in the low single digits.

In terms of business segments, Microsoft's mobile products division experienced some of the most significant growth, with sales up 43 percent sequentially for the fourth quarter, Liddell said. For the year, license revenue for smart phones and mobile devices experienced 130 percent growth from 2004, he added.

Liddell said that a strong PC market also contributed significantly to Microsoft's revenue and earnings for the year, with PC client revenue growth of 10 percent and original equipment manufacturer (OEM) revenue growth of 14 percent over last year.

The year ahead also should show strong revenue growth, Liddell said, noting some factors that will contribute to Microsoft's earnings pattern over the next six months.

Microsoft has some significant product releases scheduled for 2006 and in particular its second fiscal quarter, including the SQL Server 2005, Visual Studio 2005 and Xbox 360 launches, Liddell said. Microsoft expects revenue to jump in that quarter based on the release of these products, which should contribute to long-term growth, he said.

"2006 will be an important year for us," Liddell said. "We believe we're making the right investments for the future."

However, operating expenses will be higher during the first quarter leading up to those launches because of marketing activities in preparation for the rollout of the new products, he said. At the same time, revenue for the server and tools division and the Home and Entertainment Division will fall off slightly as customers anticipate new releases, Liddell added.

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Elizabeth Montalbano

IDG News Service
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