Microsoft Q2 2007 by the Numbers
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Minus would be one way to describe Microsoft's second quarter 2007, as four out of five business divisions reported year-over-year income declines. |
Microsoft mostly attributed the income declines to a whopping $1.68 billion revenue deferral for the Office 2007 and Windows Vista technology guarantee programs. During the quarter, Microsoft and PC partners offered coupons for free or discounted copies of new Office and Windows versions. Microsoft revenue growth would have been 20 percent, if not for the deferral.
Overall operating income also declined 25 percent to $3.472 billion in the second fiscal quarter, compared to $4.657 billion, a year earlier. Revenue reached $12.542 billion, up 6 percent, from $11.837 billion in the year-ago quarter.
Earnings per share was 26 cents, with the deferral accounting for 11-cents per share.
For the fiscal third quarter, Microsoft forecasts a revenue range of $13.7 billion and $14 billion, which includes recognition of the $1.68 billion deferral. Microsoft expects income between $6.1 billion and $6.3 billion. Earnings-per-share estimates are 45 cents to 46 cents, including 12 cents from the revenue referral.
For the full fiscal year, ending June 30, Microsoft expects revenue between $50.2 billion and $50.7 billion, with operating income between $19.3 billion to $19.7 billion. Expected earnings-per-share estimates: $1.45 to $1.47.
For all of 2007, Microsoft expects double-digit revenue growth and also double-digit earnings-per-share growth stronger than revenue.
Additional Highlights:
- PC market growth exceeded Microsoft's expectations--8 percent to 10 percent. Notebooks greatly outsold PCs, and PC growth was strongest in emerging markets. Microsoft expects PC sales growth between 9 and 11 percent for the fiscal third quarter.
- Volume license sales exceeded Microsoft expectations. Enterprise Agreement renewals came in at what Microsoft described as the "high end" of renewal rates, which are typically between 66 percent and 75 percent. Select and Open license renewals accelerated following the Office 2007 and Windows Vista business launches on November 30.
- Unearned revenue, largely from volume licensing, reached $11.9 billion.
- Server and Tools had its 18th consecutive quarter of double-digit growth.
- To date, Microsoft has sold 10.4 million Xbox consoles.
Segment Forecasts
Microsoft expects Client division revenue growth to be 11 to 12 percent year over year for fiscal 2007. For third quarter, revenue growth is forecast to be between 54 percent to 56 percent, bolstered by $1.1 billion in deferred revenue. Without it, Microsoft would have expected 16 percent to 18 percent growth.
Two important highlights: Microsoft expects the full-year premium mix of Windows licenses to be about 60 percent "premium" versions, which command higher revenues. Microsoft also has observed more customers adding Windows to volume licensing contracts. The implications are potentially huge. Historically, about 80 percent of Windows license revenue come from PC sales. The change would foreshadow businesses buying rights that would let them downgrade some new PCs to Windows XP or acquire Vista licenses for future upgrades.
Microsoft expects Server and Tools division revenue growth to be between 16 percent and 17 percent for the fiscal third quarter and also for the year. The company is on track to completing Windows Server, codename Longhorn, in the second half of 2007. Completion wouldn't necessarily mean broad availability.
Longhorn to release to manufacturing in second half of 2007.
Microsoft expects Business division growth to be between 10 percent and 12 percent for fiscal 2007. For third quarter, expected revenue growth is between 27 percent and 28 percent, bolstered by $500 million deferred from second quarter. If not for the deferral, Microsoft would have expected revenue growth between 13 percent and 14 percent.
The next version of Dynamics CRM, codename "Titan," will release during summer.
Microsoft expects Online Services division fiscal third quarter revenue growth to be between 4 percent and 10 percent. Advertising growth, driven by display ads, is expected to be in the mid-teens. Search remains Microsoft's bane, as Google continues to gobble up market share.
Comments (4)
Joe - I was wondering if you were going to do your quarterly review of Microsoft's financials now that you've moved over to Microsoft Watch. I used really look forward to reading your point by point overview of the fiscal quarterly numbers every few months back when you were with Jupiter Research and I'm pleased as punch that you're continuing the tradition.
While I don't know what the hell is going on with the Online Services number, I think you might be being a little critical in your first line describing the quarter as a "minus" WRT operating income for the quarter relative to last year - especially since the deferral has to do with consumers having the opportunity to get Windows Vista through the tech guarantee.
I mean, in the end, does YOY numbers for quarters really matter in this segment when we're talking about the release of a major revision? Isn't this the same "irregularity" we've seen in past years with products like Win2000?
I would think that a more apt description for this quarter's client/server income would be the" 5 year exception-to-the-rule" based on the cyclical nature of major version releases like Windows or Office... or in this case, both.
But that's just my opinion. I could be wrong. (with apologies to Dennis Miller)
p.s. I continue to be glad that you haven't gone over the "the dark side" and become a "Mary Jo Foley" Sith lord, linkbaiting & rumormongering your way to fame. Her journalism is on the level of unprofessionalism of The Register.
Posted by la_bruin | January 25, 2007 8:13 PM
la_bruin wrote: "I think you might be being a little critical in your first line describing the quarter as a 'minus'"
Thanks for the support, and I understand about the minuses. I led with that simply because no one else seemed to be pointing it out.
The deferral is a bit unusual because Microsoft had it without shipping products. So, there is plenty of uncertainty around the guarantee and potential cost of unsold inventory.
I've only taken a first, real look at the numbers. There is still a lot to sort out given the unusual nature of the quarter--deferral, volume licensing, unearned revenue, business Office and Windows launches, etc.
For example, in my first pass I made a big deal out of increased Windows licenses from volume licensing. But that could be a short-term phenomenon, because licenses weren't available on new PCs. That will be part of the fresh look over the numbers.
Thanks,
Joe
Posted by Joe | January 25, 2007 8:52 PM
if somebody wants to read an objective interpration of mirosoft financial results
have a look at this column by Business Week with title "Microsoft's Sales Bounce Back
Second-quarter results that beat analysts; expectations and an upbeat forecast for the second half gave the company's shares a boost".
http://www.businessweek.com/technology/content/jan2007/tc20070125_718861.htm?chan=top+news_top+news+index_businessweek+exclusives
Posted by Evan | January 26, 2007 12:53 PM
La Bruin: How far up Microsoft's back pocket are you? And why do you feel compelled to bash Mary Jo Foley and The Register? Both of them are superior to this site, IMHO.
Posted by LaBruin Smells Funny | January 26, 2007 3:23 PM