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January 24, 2008 6:22 PM

Microsoft Q2 2008 by the Numbers



News Analysis. For the second straight quarter, Microsoft's Business, Client and Server & Tools divisions drove up revenue to record levels. Sales in emerging markets showed remarkably strong growth, too.

But Wall Street really looked for Microsoft's future guidance, with markets turbulent because of U.S. economic uncertainty. The quarter past, while significant, suddenly isn't as important as the quarters to come.

For the 2008 fiscal second quarter, Microsoft revenue reached $16.37 billion, or a 30 percent year-over-year increase. Operating income surged 87 percent to $6.48 billion, or 50 cents per share.

Growth levels are artificially high, because Microsoft deferred $1.64 billion in the same quarter last year. Otherwise, revenue growth would be 15 percent and operating income growth only 27 percent.

Nevertheless, Microsoft results blasted past guidance. In October, Microsoft forecast second-quarter revenue being between $15.6 billion to $16.1 billion, with operating income of $5.9 billion to $6.1 billion, or 44 cents to 46 cents per share.

Microsoft's record-setting results are $2 billion greater than its next highest revenue quarter.

Microsoft FY2008 Q2 Revenue

Future guidance may give some relief to Wall Street concerns about technology spending. Once again, Microsoft raised its fiscal 2008 projections.

"We believe our business is very well-positioned in the technology industry," Chris Liddell, Microsoft's CFO, said during an earnings conference call this afternoon. While he cautioned that because of weak PC shipments, "we could see a slowdown," the expectation is double-digit PC sales growth.

For the fiscal third quarter, Microsoft projected earnings in the $14.3 billion to $14.6 billion range, with operating income between $5.6 billion and $5.7 billion, or 43 cents to 45 cents earnings per share.

For fiscal 2008, Microsoft projected revenue in the $59.9 billion to $60.5 billion range, operating income between $24.2 billion and $24.4 billion, and $1.85 to $1.88 earnings per share.

In October, Microsoft projected between $58.8 billion and $59.7 billion revenue, with operating income between $23.3 billion and $23.7 billion, or $1.71 to $1.81 earnings per share.

Wall Street analysts repeatedly asked Liddell about future sales, in context of economic pessimism. Liddell said that Microsoft had just finished its global review, which factored into its confidence about the future. Liddell does expect software sales to exceed GDP (gross domestic product) growth and even exceed that of overall software industry sales growth.

Liddell's confidence may have something to do with where Microsoft makes its money. Just four years ago, the majority of revenue came from North America. Now, 60 percent of sales are outside the United States, Liddell said. For the quarter, Microsoft sales increased 30 percent in emerging markets, 20 percent in established markets like Europe and 15 percent in the United States.

Even if the U.S. economy slows down, overseas sales could offset any decreases in technology spending here.

Segment Highlights
Client. OEM revenue accounted for $1.7 billion of the total $4.34 billion in revenue. OEM license unit growth was 18 percent, well ahead of Microsoft's worldwide PC shipment growth estimate of 14 percent to 16 percent. Microsoft expects 11 percent to 13 percent PC shipment growth through the end of its fiscal year.

Microsoft's anti-piracy efforts continue to pay off in emerging markets like China and Russia. Liddell said that "better enforcement," the market shift to laptops, and "technology advances in Vista" have helped curb piracy.

"From a unit perspective it's helping us about 3 percent," Liddell said, with respect to OEM growth compared with PC shipment growth.

Microsoft said that increased emerging market sales and Enterprise Agreement licensing increased retail Windows licensing by $92 million, or 18 percent.

Microsoft FY2008 Q2 Income

Server & Tools. SQL Server and Windows Server volume-license renewals contributed to revenue growth ahead of the launch of 2008 versions next month. Windows Server Enterprise license revenue grew 35 percent. Consulting revenue increased 28 percent.

Business. Dynamics billing increased 26 percent year over year. Consumer revenue surged 153 percent, or $592 million, bolstered by retail Office 2007 sales. Growth for SharePoint Server and Office Communications Server both exceeded 50 percent.

Microsoft's Business division is now Microsoft's largest. Revenue for the quarter exceeded the Client division.

Online Services. The division's profits plunged in part because of the transition still underway from the aQuantive acquisition. The division's ad revenue grew 38 percent, or $170 million, to $623 million. The amounts includes $52 million in advertising from aQuantive, which also contributed $102 million in agency revenue. The results already show positive benefits from aQuantive.

Year over year, the number of Windows Live IDs increased to 427 million from 352 million. Microsoft also announced 45 million Windows Live suite downloads since its November release.

Entertainment & Devices. Microsoft shipped 4.3 million Xbox 360 units during the quarter, slightly less than the same quarter last year. Zune Social memberships reached 1.5 million during the quarter, and the number of music downloads doubled year over year.

Looking Ahead
For the segments, Microsoft's fiscal third-quarter growth forecasts are:

  • Client, 3 percent to 5 percent
  • Server & Tools, 17 percent to 19 percent
  • Business, 11 percent to 12 percent
  • Online Services, 40 percent to 45 percent
  • Entertainment & Devices, 25 percent to 30 percent

Unearned revenue continues to grow double digits year over year. For the quarter, unearned revenue reached $12.2 billion, or about $500 million more than Microsoft's forecast. "The unearned balance was extremely good," Liddell said.

Unearned revenue largely derives from annuity licensing contracts. Overall, Microsoft expects annuity licensing renewals or signups to be strong for Office, Windows and Windows Server.

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Comments (20)

mailbox01 :

Isn't it ironic that MS Ent & device division '08 Revenue (though small and flat) is basically the same as Apple's entire Revenue

Tom Berber :

Hey, just wanted to alert anyone reading I-Menst hype about VCSY stock, that it is a scam. VCSY is a penny stock that is being hyped by I-Menst in order to artificially increase it's value. Although this scam is not working, and in fact VCSY stock has dropped significantly since I-Menst's hype, he continues. This scam is focused on you, the reader of Microsoft Watch. This is the wrong forum for I-Menst to be doing this and the owner, Joe Wilcox, should be blocking scams/spam such as this

Now is the time to sell VCSY stock. It is now nearly worthless and the company is headed toward non-existence. If you have not read it, please click on this link: http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=661527
That is from Business Week, not I-Menst.


The patents VCSY holds are unenforceable and therefore are of no threat to Microsoft whatsoever. I highly recommend a sell when it comes to VCSY stock.


Again, please take note that I-Menst does not refute the very facts and evidence that VCSY provides itself. All I-Menst has to go on is $3 mil lawsuit from October last year against a Chinese company. It wasn't enough to put VCSY back on track financially. Not by a long shot.


VCSY is still unable to pay its debts and employees.


I highly recommend that if you happen to have VCSY stock, sell it at your earliest opportunity to minimize your losses. Do not let I-Menst give you false hope.


You can see the full financial picture of VCSY from a highly reputable source, Business Week. Check it out: http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=VCSY.OB

Tony Wilkins :

Hey, just wanted to alert anyone reading I-Menst hype about VCSY stock, that it is a scam. VCSY is a penny stock that is being hyped by I-Menst in order to artificially increase it's value. Although this scam is not working, and in fact VCSY stock has dropped significantly since I-Menst's hype, he continues. This scam is focused on you, the reader of Microsoft Watch. This is the wrong forum for I-Menst to be doing this and the owner, Joe Wilcox, should be blocking scams/spam such as this

Now is the time to sell VCSY stock. It is now nearly worthless and the company is headed toward non-existence. If you have not read it, please click on this link: http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?capId=661527
That is from Business Week, not I-Menst.


The patents VCSY holds are unenforceable and therefore are of no threat to Microsoft whatsoever. I highly recommend a sell when it comes to VCSY stock.


Again, please take note that I-Menst does not refute the very facts and evidence that VCSY provides itself. All I-Menst has to go on is $3 mil lawsuit from October last year against a Chinese company. It wasn't enough to put VCSY back on track financially. Not by a long shot.


VCSY is still unable to pay its debts and employees.


I highly recommend that if you happen to have VCSY stock, sell it at your earliest opportunity to minimize your losses. Do not let I-Menst give you false hope.


You can see the full financial picture of VCSY from a highly reputable source, Business Week. Check it out: http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=VCSY.OB


Tom asked me to post this for him.

Tom Berber :

Joe,


If I am being blocked, I hope that I-Man is also being blocked.


I feel it is ridiculous that I have had to fight spam with spam. You need to take control of your site to some extent and rid it of the garbage. As I said in a post (paraphrased), "I would gladly be blocked if I-Man were blocked. It would be worth the sacrifice." Freedom of speech is one thing, but blantant spam has no place in an otherwise informative site I used to love.


Keep me informed Joe.


Thanks,


Tom Berber

mailbox01 - not true. MS just reported Q2 revenue for Ent/Dev of about $3B, and Apple just reported quarterly revenue of $9.6B.

Joe :

Tom Berber wrote: "If I am being blocked, I hope that I-Man is also being blocked."

Tom,

I wouldn't block you. Please don't hesitate to keep commenting. However, if you post a comment and it doesn't appear, links would be the blame. The blogging system treats comments with links as spam and junks them. That's an automatic process.

Thanks,

Joe

I-Man :

Not much money to be made here for Microsoft...

And this is where you can see for yourself how poorly Microsoft has aligned itself in this entire situation.

http://dnjonline.com/article.aspx?ID=nov07_adobeair
Nov 2007

Silverlight is a plug-in for a Web browser whereas AIR allows Web applications to be installed on the desktop, so a more direct comparison would be between Silverlight and our Flash Player....

The other comparison is between WPF and AIR. WPF is a framework: a set of APIs for building an application. AIR is a runtime that enables things to run. You can use many different frameworks to build an AIR application, so the comparison with WPF would be against those other frameworks.

(more on URL)
-----

Whooooweeee Microsoft Silverlight is no more than a Flash imitator and Microsoft is attempting to convince the market they have the goods to compete with Adobe. WPF is a Microsoft platform and that's it while Adobe can run anywhere.

What happened, Microsoft developer? What happened to your career future? Your hopes for being in on the ground floor of the web-platform era went up in smoke last year and you weren't even given a heads up.

When the lies come home to roost, there's going to be chicken$#!@ all over the house.

chips :

A nice article about MS profits Joe with lots of facts and figures. What I would comment on, is if the amount of money that MS made, a good thing or not, and the future direction of the revenue for M
S.

As far as the money that they made (increased) in Q2, I would say it came from two sources, Office and Windows, as usual the base of Micro$ofts profits. Increasing the amount or percentage, of profits from these two groups, can have damaging results in the long run. Its clear that Vista models were really a price increase over XP. Office was another scheme to milk the public with it proprietary file formats (OOXML lockinware). At some point, businesses and users, will reach the point that they realize, they are paying too much for these products. Because the increase in profits equals an increase in cost to the consumers of both Windows (Vista) and Office. This fact alone may further the acceleration of users and businesses migrating to alternative Operating Systems, Open Source, and OpenOffice.

Now for the second point, the future of MS. Steve Ballmer has said that the future of MS will be in advertising, and home entertainment. Home entertainment mostly meaning the Xbox, which as pointed out by several commentators in previous articles, overall, which most likely never repay all the money sunk into it. As far as online advertising, while MS has managed in the short run to make this lose for now, its really their best shot for the future. The competition from companies like Google, Adobe, and Yahoo, will however, never let MS acquire the stanglehold monopoly on the internet that it holds on the desktop at present. So MS at best will only come in 2nd or 3rd in this sector.

Now for the dark cloud around the silver lining of MS profits in the future. Users and Businesses are starting to wake up, there is a small percentage moving to alternative operating system. Expect this trend to continue and accelerate. Vista is a poor release of a MS OS, and as such has hurt MS. As this link attempts to show;

http://www.theinquirer.net/gb/inquirer/news/2008/01/23/users-shrug-windows

Titled; Users shrug at Windows 7

Quotes; :
"IT WOULD APPEAR that Microsoft really has blotted its copybook rather badly by foisting the deplorable Windows Vista on users instead of releasing a good OS.

Slashdot ran a poll Tuesday evening asking "If Windows 7 Releases Next Year...?"

At the time of writing, the distribution of 14,065 total responses was as follows:"

chips :

Vista has not gone over well with businesses and users. Now we are close to Vista SP1, or as many are calling it Vista Marketing Pack 1.

So what will Vista Service Pack 2 be called? How about Windows Seven? Yes, Microsoft is rushing out (maybe) its next release of warmed over Vista code as Windows Seven. Let the upgrade cycle start over and continue, and the MS coffers overflow. Give till it hurts.

Windows 7 Scheduled for 2009?

http://www.osnews.com/story/19199/Windows_7_Scheduled_for_2009_

chips_is_a_joke :

"Vista has not gone over well with businesses and users"

just keep saying it chips. its as untrue now, as it was the first 100 times you belched it out. you might want to stick to posting nonsense like that on articles not specifically detailing the MONEY derived from the exact OPPOSITE behavior, however.

Marco :

"The company is getting a smaller slice of a bigger pie"

There's evidence to suggest that Microsoft's share of the OS market has declined considerably since Vista's release last January.
http://www.informationweek.com/news/showArticle.jhtml?articleID=205918757

Microsoft has sold more than 100 million Vista licenses -- meaning that the OS was aboard about 39% of all new PCs that shipped last year. By contrast, Windows XP was on about 67% of the new computers that shipped in 2002 -- XP's first full year on the market.
The bottom line: While Microsoft's OS sales are increasing in absolute terms -- they jumped 68% in the second quarter to $4.3 billion -- the company is getting a smaller slice of a bigger pie.
--------------

chips :

http://arstechnica.com/journals/microsoft.ars/2007/11/21/pc-software-sales-in-2007-buoyed-on-strength-of-vista-office-sales

"Despite Microsoft's best efforts with its "Games for Windows" initiative, PC gaming dollar volume fell 3.6 percent this year. This isn't unusual—the PC gaming market has been shrinking for nearly a decade—but NPD does note that more money is being spent on PC games if subscriptions are included."
----------------------------------------------------
What this means is that PC gaming on Windows computers, specically Vi$ta computers, is in decline. Games are increasing going to gaming consoles, where sales are far better.

The main advantage of Windows is that most PC games are written for it, this has already started changing. Wine, Crossover, and Cedega, can run many Windows Games in Linux and BSD. Wine gets better with age, as there is a new and improved release every few weeks that runs more windows games and apps than did the previous versions.

I suspect that far fewer games will now be written for Windows, especially for Vista DX10 was its slowness and bug problems as well.

With a Possible Decline in PC Game Sales, Would Linux Ultimately Benefit?
echindemand.com/2007/09/03/with-a-possible-decline-in-pc-game-sales-would-linux-ultimately-benefit/

moronchips :

"I suspect that far fewer games"

and i suspect you are a little turd with no original thought. how big a loser is it, that posts hundreds of times on this board. get a fuc*ing life!

chips :

To Marco;

You know when you are getting to the Micro$hills, Nealolites, and Micro$erfs when all they have left is namecalling, LOL. Thats fine, cause its lets me know that someone at Vader central dosen't like my posts, and can't respond in a debate based on the facts.

Here is a little link from USA News, that tells what most people really think about Vista;

Vista causes an array of problems

http://www.usatoday.com/tech/columnist/andrewkantor/2007-03-02-vista-problems_N.htm

Quote; "And I can say confidently that it's not yet ready for primetime."

Marco :

To Chips:

Apparently you touched a nerve (the Games!-
specifically Vi$ta computers, is in decline-)

because that you were insulted for no reason.

Marco :

Furthermore, they have to health's problem

"According to the German team, the decreased sensitivity to negative consequences of actions as a result of D2 receptor reduction may also explain why the A1 gene variant has previously been linked to addictive and compulsive behaviors. Even so, "It's our strong belief that the variant we investigated here is not the only cause for example of an addiction - but maybe it contributes to a predisposition for developing an addiction," Klein stresses."
---------
Similar to 'Stockholm Syndrome'(ha,ha)

moronchips :

no. i just have a deep aversion to anyone so out of sync with reality, that they believe they sound smart. its not a microsoft thing (i know you have a hard time seperating microsoft from the other trillion aspects of life).

see ya fools!

Marco :

Ha,ha,ha!!
(i know you have a hard time seperating CHIPS from the other trillion aspects of life)

marco_personality_less :

nice original reply, fool. do you and he wash each others backs all the time?

oops, wash=watch. how every could i have made that mistake w/ you two.

Tom Berber :

Absolutely the game thing is going to console. It pretty much already has.


In the future, but still several years away, Windows will be just another operating system alongside Mac and Linux. There will not be any domination. There won't be any need. In the future you will use your Linux PC to access your web apps and docs. Or your Windows PC, or your Mac. Windows will probably be a free download. Windows will not be where MS will make it's money. So, security, stability, ease of use... that will be what users will be looking for in their OS. Right now Linux has Windows beat(in security, stability, ease of use... ), no doubt about that. But don't count MS out, because when the competition gets hot, it brings out the best (or beast?) in MS. Windows will be better and it will be free, but it won't be open-source.


Remember when Netscape CHARGED for their browser? I remember seeing it in boxed edition in stores such as Office Depot.

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