Microsoft Credits W2K, Enterprise Servers for Record Revenues

Microsoft Corp. attributed its ability to rake in money during a financial quarter when many companies struggled to the growing acceptance of its business software.

"Windows 2000 is really taking off. Next, we have a much broader and [more] compelling server product line than a year ago," said Microsoft CFO John Connors in explaining Microsoft's financial performance for the fourth quarter of fiscal year 2001.

The company on Thursday reported revenue of $6.58 billion for the quarter that ended June 30 -- 13 percent more than the year ago quarter. For the entire year, the company pulled down $25.3 billion in revenue, a 10 percent bump over the previous fiscal year.

An operating income of $2.75 billion for the quarter was almost counterbalanced by a $2.6 billion charge related to investment losses. Earnings came to one cent per share. The investment losses resulted primarily from Microsoft's holdings in telecommunications and cable companies.

Windows 2000 Professional was the star of the earnings call. Revenue from Windows 2000 Professional grew 50 percent during the quarter, said Microsoft corporate controller Scott Boggs. This quarter is the third in a row where sales of Windows operating systems exceeded $2 billion, he said.

The high margin Windows 2000 Professional and Windows NT Workstation operating systems accounted for 41 percent of Microsoft's client operating system shipments in the quarter, Boggs said.

While that may sound good on the surface, it's not necessarily so. "We'd probably like to see the Windows 2000 percentage decline because the PC market recovers," Connors noted. Microsoft's expectations that PC shipments would grow at a relatively slow 7 percent to 8 percent in fiscal year 2001 were met by the market, Connors said.

Microsoft officials are hoping the Windows XP-Pentium 4 combination will spur consumer PC sales in the second quarter of fiscal year '02.

Connors attributed the boost in Windows 2000 Professional sales to Microsoft's work with OEM partners and large corporate customers to deploy Windows 2000 and the pre-installation of the client OS on the business notebooks and desktops that used to ship with Windows 98.

Revenue from Windows 2000 Client Access Licenses was also up 30 percent over the year-ago quarter.

On the server side, Microsoft called attention to SQL Server, which the company previously announced had exceeded $1 billion in sales for the year, and Exchange Server. "The Exchange business continues to grow faster than any of the others in this category," Boggs said. Microsoft said Thursday that there are now 85 million Exchange mailboxes installed worldwide. That's up from the 75 million figure Microsoft was using at TechEd in late June.

When asked about Windows 2000 Server, Connors said those server operating systems had revenue growth in the "mid teens" over the year-ago period. "For the full year of fiscal year '02 we'd expect it to reach that number again," Connors said.

The company reported 20 percent growth in its enterprise software and services division overall, which includes the .NET Enterprise Servers and the Windows 2000 Server family of operating systems.

Enterprise revenues were nearly $1.3 billion, up from about $1 billion for the year-ago quarter. For the entire year, enterprise revenues were up to $4.8 billion from about $4 billion the previous year.

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.

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