News

Microsoft Earnings Hit $3.46 Billion in Q2

• By Scott Bekker
• 01/27/2005

"Our record revenues came from across-the-board strength in both our business and consumer segments," outgoing chief financial officer John Connors said in a statement. Connors announced earlier this year that he will be leaving Microsoft to join a venture capital firm.

The $10.82 billion in revenues represents a 7 percent increase over the year-ago quarter. Net income was much higher than the $1.55 billion from the second quarter of Microsoft's fiscal 2004, but the older quarter included $2.21 billion in compensation expenses from the employee stock option transfer program.

Diluted earnings per share were $0.32, which exceeded Microsoft's stated expectations by $0.04.

Bolstering the server and tools business were a 25 percent boost in SQL Server revenues and the fastest adoption of licenses yet for a new version of Exchange since Exchange Server 2003 launched. Server and Tools revenues hit $2.5 billion with operating income at $913 million. The operating income is a $1.1 billion turnaround from the second quarter of 2004 when the segment lost $209 million on $2.1 billion in revenues.

Sales of "Halo 2" and Xbox consoles during the quarter, which included the holiday season, fueled the segment's first profitable quarter. "Our long-term approach to growing new businesses is paying off," Connors said. The Home and Entertainment segment swung from a $397 million loss in Q2 2004 to an $84 million profit in Q2 2005. Revenues rose from $1.27 billion to $1.41 billion.

In all, Connors said Microsoft's three emerging businesses combined for an almost $700-million gain in operating results compared to the year-ago quarter.

Elsewhere, the Client segment, which includes Windows XP, continued to steamroll the industry. More than $3.22 billion in revenues and $2.53 billion in earnings poured into Microsoft's coffers from the Client segment.

Information Worker, the segment that includes Office, brought more operating income, but less revenue compared to the year-ago period. Operating income rose from $1.83 billion to $2.03 billion, but revenues fell from $2.86 billion to $2.78 billion.

Looking ahead, Microsoft is telling investors that in the quarter that will end March 31 they should expect revenues of $9.7 billion to $9.8 billion, operating income of $4.1 billion to $4.2 billion and diluted earnings per share of $0.27 to $0.28.