Strong server, PC sales boost Microsoft revenue

Citing continued strength in the PC and server markets, Microsoft on Thursday reported earnings that beat Wall Street expectations and a 12 percent increase in revenue for the first quarter of its 2005 fiscal year.

The world's largest software vendor reported net income of US$2.9 billion on revenue of US$9.19 billion for the three-month period ended Sept. 30. That compares to net income of US$2.61 billion and revenue of US$8.22 billion in the year-earlier period, the company said in a statement.

Earnings per share including an unspecified expense for stock-based compensation amounted to US$0.27, beating by US$0.02 Microsoft's own July forecast and the consensus estimate of analysts polled by Thomson First Call on that basis.

The 12 percent year-over-year revenue increase was primarily driven by sales of the Windows Server operating system and other server applications as well as Office products and Windows client operating system software, Microsoft said. Small and midmarket buyers especially led improvements in IT spending, the company said.

"We've had a strong beginning to what we expect will be a very good year," Microsoft Chief Financial Officer John Connors said in a statement.

Aside from its flagship Windows and Office products, Microsoft also saw strong customer interest in its management offerings. Its management server business, with products such as Microsoft Operations Manager and Systems Management Server, grew more than 20 percent in revenue, the company said.

Other parts of the company also did well, with the MSN Internet group maintaining operational profitability and increasing revenue by 10 percent. Microsoft Home and Entertainment, the group that includes the Xbox game console business, is still loss-making but is ramping up for the Nov. 9 release of Halo 2, a much-anticipated video game that has been preordered 1.5 million times already.

Looking ahead, Microsoft expects revenue for its second quarter ending Dec. 31 to be between US$10.3 billion and US$10.5 billion with earnings per share at US$0.28, including stock-based compensation expenses.

The Redmond, Washington, company slightly raised its full fiscal year 2005 forecast and now expects revenue for the year ending June 30, 2005, to be between US$38.9 billion and US$39.2 billion with earnings per share between US$1.07 and US$1.09. In July, the top of Microsoft's fiscal 2005 forecast was for revenue of US$38.8 billion and earnings per share of US$1.08.

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Joris Evers

IDG News Service
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