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Here’s a look at the breakout of Microsoft’s 1Q FY07 earnings report supplemented by information from the 10-Q filing to see what it says about the various component businesses. The full numbers are reproduced below following some brief commentary. This kind of look is now rather less enlightening than it used to be since Microsoft has started reporting results for its new 5 division arrangement instead of the previous 7 business segments.
Cash cows:
Client and Business (mostly Office) snoozed through the quarter with modest revenue increases eaten by greater headcount for their big stories of next year, Vista and Office 2007 respectively. Server and Tools once again shone - too bad they only seem to get the buzz at earnings time. In particular, SQL Server had 30% revenue growth.
The Mavericks:
Online Services revenues continued to decrease as MSN sheds ISP subscribers and the 5% increase in display advertising sales wasn’t enough to make up for it and the decline in search advertising revenues. Add in a 43% increase in headcount expenses to build the new Live and MSN properties and income went way in the tank.
Then there’s Entertainment and Devices where the results are disproportionately those of the Xbox 360 and associated Xbox and PC games which together accounted for $319 million of the revenue increase from a year ago when the Xbox 360 wasn’t yet shipping. Doesn’t seem like that big a blip does it? In any case, 900,000 Xbox 360s were sold during the quarter and someone must be doing good since the E&D loss was nearly halved to $96 million despite a reported increase of $268 million in expenses for the Xbox, games, and Zune.
The Oddities:
You know it’s a slow quarter when 61% of the profit increase comes from reductions in “Corporate-level Activity.” Of course we’re talking Microsoft and this turned out to be mostly a reduction in legal expenses partially offset by increased corporate headcount.
| Revenue |
Three Months Ended |
||
| (millions) | % change | 2006 | 2005 |
|
|
|||
|---|---|---|---|
| Segments | |||
| Client | %4.5 | $3,303 | $3,161 |
| Server and Tools | 17.5 | 2,499 | 2,127 |
| Online Services | (4.4) | 539 | 564 |
| Business | 4.3 | 3,425 | 3,283 |
| Entertainment and Devices | 70.0 | 1,030 | 606 |
| Unallocated, other | - | 15 | 0 |
| Total revenue | %11.0 | $10,811 | $9,741 |
| Operating Income / (Loss) |
Three Months Ended |
||
| (millions) | % change | 2006 | 2005 |
|
|
|||
| Segments | |||
| Client | %2.6 | $2,637 | $2,570 |
| Server and Tools | 36.0 | 827 | 608 |
| Online Services | (300.0) | (136) | 68 |
| Business | 0.4 | 2,253 | 2,244 |
| Entertainment and Devices | - | (96) | (173) |
| Corporate-level Activity | - | (1,011) | (1,271) |
| Total Operating Income | %10.6 | $4,474 | $4,046 |
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October 28th, 2006 at 12:19 PM
[...] While Microsoft was announcing this week that their 1Q profits got a big boost from reduced legal expenses, a number of law suits involving Microsoft were also making the news: [...]
November 1st, 2006 at 9:39 AM
[...] Kummert’s bio is here. You may recall that SQL Server was a bright spot in last quarter’s hohum Microsoft earnings report. Filed under Executives, Servers, SQL Server, Microsoft [...]
February 23rd, 2007 at 11:52 AM
[...] That’s 4 million additional this holiday quarter as Sony launches the PS3 and Nintendo launches the Wii. Sony, at least, will have product shortages, but bear in mind that the old PS2 still outsells the “new generation” Xbox 360 and that only 900,000 Xbox 360s were sold last quarter. Time will tell, but as I have said before, this one is Sony’s game to lose and Nintendo may yet be the spoiler for both of the high priced big guns. Filed under Executives, Coopetition, Xbox, Sony, Microsoft, Nintendo, Peter Moore [...]
April 26th, 2007 at 5:00 PM
[...] The oddity of the “deferral” aside, Microsoft’s cash cows came close to keeping pace with the overall market which was a bit better than last quarter while Server and Tools continued its winning ways. Entertainment and Devices and Online Services keep stinking out the joint. There wasn’t really a lot new here despite the Three Card Monte with the Vista and Office 2007 deferral. [...]