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.
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.
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.
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.
Three Months Ended
|Server and Tools||17.5||2,499||2,127|
|Entertainment and Devices||70.0||1,030||606|
|Operating Income / (Loss)||
Three Months Ended
|Server and Tools||36.0||827||608|
|Entertainment and Devices||-||(96)||(173)|
|Total Operating Income||%10.6||$4,474||$4,046|