Microsoft Q4 2008 by the Numbers

[Editor's Note: First eight paragraphs posted at 4:24 p.m. EDT, with completion of blog at 6:40 p.m.]

For the fiscal 2008 fourth quarter, Microsoft revenue topped $15.84 billion, or an 18 percent year-over-year increase. Operating income was $5.68 billion, or 46 cents per share. Respectively, year-over-year growth was 42 percent and 48 percent.

For its fiscal year, Microsoft revenue increased 18 percent year over year to $60.42 billion. Operating income grew 21 percent to $22.49 billion; earnings per share grew 32 percent to $1.87.

In April, Microsoft forecast fourth-quarter revenue in the $15.5 billion to $15.8 billion range, with operating income between $5.8 billion to $6.2 billion, or 45 cents to 48 cents per share.

Microsoft had forecast for fiscal 2008: Revenue in the $60.1 billion to $60.3 billion range, with operating income ranging from $22.6 billion to $23 billion, or $1.87 to $1.90 per share. The forecast was an adjustment from six months earlier. In January, 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.

While Microsoft posted strong year-over-year growth in revenue and earnings, earnings per share came in at the low end of guidance. During a conference call this afternoon, Microsoft CFO Chris Liddell expressed disappointment about earnings per share, which he partly attributed to weak economic conditions and uncertainty about the failed Yahoo acquisition.

Microsoft offered forward guidance. For fiscal 2009 first quarter, Microsoft expects revenue between $14.7 billion and $14.9 billion, operating income between $5.9 billion to $6 billion and 47 cents to 48 cents earnings per share.

For fiscal 2009, Microsoft forecasts revenue between $67.3 billion and $68.1 billion, operating income between $26.3 billion and $26.9 billion and earnings per share between $2.12 and $2.18. Respectively, that's projected year-over year growth of 11 percent to 13 percent, 17 percent to 20 percent and 13 percent to 17 percent.

By geography, year-over-year growth was 15 percent in the United States, 16 percent in other mature markets and 35 percent in emerging markets. Given that close to two-thirds of Microsoft revenue now comes from outside the United States, the emerging market growth is a favorable sign.

Segment Results
Microsoft claimed double-digit revenue growth across its five major segments, but Online Services and Entertainment and Devices were money losers for the quarter, with the online group losing more than $1 billion for the year.

Client. The Windows group's quarterly revenue topped $4 billion and approached $17 billion for the year, fueled by strong PC shipments, which Microsoft estimated grew 12 percent to 14 percent year over year. OEM license growth was a surprisingly strong 22 percent. Microsoft attributed the gains partly to better PC channel management and improved antipiracy efforts.

Microsoft noted that OEM shipments accounted for about 80 percent of license sales, a number not stated for some time. That suggests that Vista is not driving a switch to annuity contracts, which is consistent with Vista Enterprise survey data I will soon blog about.

To date, Microsoft has shipped 180 million Vista licenses.

Looking ahead, Microsoft expects PC shipments to grow 10 percent to 12 percent during fiscal first quarter and 12 percent to 14 percent during fiscal 2009. Microsoft expects 20 percent PC shipment growth in emerging markets during fiscal 2009.

Server and Tools. This should have been the division's big year, and it was, with more to come in fiscal 2009. The division benefited from the release of new Windows Server and Visual Studio versions, and SQL Server 2008 is near release. The division posted the strongest meaningful year-over-year revenue growth—21 percent. The online and entertainment divisions had stronger growth, which were offset by profit losses.

Server is Microsoft's dream division because of annuity licensing contracts. The division saw a 37 percent increase in unearned revenue. Windows Server drove annuity renewals, but so did SQL Server ahead of the new version. Microsoft saw its consulting and support services increase 29 percent to $593 million.

I had to laugh when during today's conference call the claim was made that Hyper-V shipped "two months ahead of schedule." The product released to manufacturing late. Microsoft shipped ahead of the delayed schedule. How many people are going to buy into that ahead-of-schedule claim? Too many, methinks.

Business. Revenue topped $5 billion for the quarter and fell shy of $19 billion for the year. SharePoint Server growth was 30 percent year over year, while Dynamics grew 22 percent. Microsoft sold 122,000 CRM licenses during the quarter.

I was surprised Microsoft had so little to say about Office 2007. If sales growth was good, wouldn't Microsoft boast as it did in previous quarters?

Online Services. The division continues to hemorrhage capital, even as Microsoft claims gains. Online advertising revenues grew 18 percent year over year, and Microsoft claimed a 28 percent growth in customers using its ad platform. Chris called the fiscal fourth quarter ad market "challenging."

Quarterly online ad revenue grew 18 percent, or $93 million, to $618 million. aQuantive contributed $94 million in agency revenues.

Chris spent some time defending the money-losing division, because of its strategic importance. Microsoft's focus is four areas: Search, advertising, communications and social networking and information content. In the latter category, Microsoft plans to make over its MSN portal.

Chris said that Yahoo would have advanced Microsoft expansion in the four areas. He said that it became clear during the quarter that an acquisition would be "unlikely." With regard to Google competition, Chris acknowledged that "search is where we are most behind."

Chris spoke about Microsoft's recent proposal to buy Yahoo's search business. He asserted that there would be "significant revenue guarantees." Chris said the deal would be worth between $19.5 billion and $26.5 billion over 10 years, with $2.3 billion a year for the first half decade. Revenue from there would depend on who extended the agreement, $1.6 billion a year if Yahoo and $3 billion a year if Microsoft.

Microsoft offered Yahoo $1 billion for core search, $2.8 billion for senior debt and $3.9 billion for stock, valued at $19.50 a share. Chris asserted that "our proposal is a compelling one."

Another online metric: Windows Live IDs topped 460 million, up from 382 million a year earlier.

Entertainment and Devices. Strong Xbox 360 consoles drove revenue way up and profits way down. During the quarter, lifetime total of Xbox 360 console sales topped 20 million units. Microsoft also claimed 12 million Xbox Live subscriptions.

Circling back to this post's lead paragraph, Bill Gates is 52. Microsoft is $60 billion.