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January 26, 2006

Microsoft earnings segment breakout

Posted by David Hunter at 6:30 PM ET.

The most interesting part of a Microsoft earnings statement is generally the breakout of the results by business segment. The segment numbers are reproduced below and the 10-Q provides detailed explanations, but here are some key points:

Income from all the variants of Windows XP was up only 4% although revenue was up 8%.

Client revenue increased during the second quarter of fiscal year 2006 driven by 15% growth in OEM license units and $273 million or 10% growth in OEM revenue from increased PC unit shipments partially offset by an $8 million or 2% decrease in revenue from commercial and retail licensing of Windows operating systems. This decrease in commercial and retail licensing reflects our customers’ continued preference for acquiring the next version of their operating system through the OEM channel when they replace their PC hardware, rather than purchasing a multi-year licensing agreement.

The remaining revenue gain was eaten up by sales, marketing, and headcount expenses, some attributable to the ramp up for Vista.

Information Worker
Office was effectively flat as expenses ate the revenue gain.

Server & Tools
Double digit revenue and income increases lead by Servers, especially SQL Server. Product support did very well too.

Microsoft Business Solutions and Mobile & Embedded
Profits for the first time because the products are selling.

Revenues down due to the tailing off of the ISP business. Income down due to increased expenses for “MSN adCenter, MSN Search and Windows Live”.

Home & Entertainment
1.5 million Xbox 360 consoles were shipped but they didn’t do much for revenue year to year due to the offsetting Halo 2 launch last year. The Xbox 360′s negative gross margins and launch expenses lead to the big loss for the quarter and the bleeding is expected to continue. To paraphrase the late Everett Dirksen: 300 million here, 300 million there – pretty soon, you are talking real money.


Three Months Ended
December 31

(millions) 2005 2004

Client $3,459 $3,193
Server and Tools 2,907 2,542
Information Worker 2,979 2,825
Microsoft Business Solutions 242 207
MSN 593 606
Mobile and Embedded Devices 101 72
Home and Entertainment 1,556 1,373

Total revenue $11,837 $10,818

Operating Income / (Loss)

Three Months Ended
December 31

(millions) 2005 2004

Client $2,638 $2,528
Server and Tools 1,099 947
Information Worker 2,101 2,065
Microsoft Business Solutions 10 (17)
MSN 58 130
Mobile and Embedded Devices 20 (12)
Home and Entertainment (293) 55
Other (976) (947)

Total Operating Income $4,657 $4,749

Filed under Financial, General Business

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3 Responses to “Microsoft earnings segment breakout”

  1. Microsoft News Tracker » Microsoft Office earnings top out Says:

    [...] In the Microsoft’s Thursday earnings report, the Information Worker segment was effectively flat year to year. Gregg Keizer discusses it with Paul DeGroot, an analyst with Directions On Microsoft at TechWeb News and he plays one of my favorite tunes: “Frankly, there’s very little upside for Office in developed markets,” said Paul DeGroot, an analyst with Kirkland, Wash.-based Directions On Microsoft. “The market share [for Office] is so high, there’s just not much room to grow.” [...]

  2. Microsoft shakes up Platforms and Services but did the other shoe really drop? -- Microsoft News Tracker Says:

    [...] These seem fairly straightforward and it’s nice to see that Server and Tools was fortunate enough not to get “clarified.” It’s a cash cow that’s growing nicely, but never gets the buzz. Finally, besides all the divisions and groups above, the PSD co-Presidents have all the usual staff executives from finance, legal and HR reporting to them too as described in the internal Microsoft memo obtained by Microsoft Watch. Filed under Executives, Jim Allchin, Kevin Johnson, Microsoft, Bob Muglia, Steve Sinofsky, Brian Valentine, Blake Irving, Will Poole, Sanjay Parthasarathy Listen to this article   [Permalink] [...]

  3. Not a prank: Barron’s declares Microsoft a growth stock -- Microsoft News Tracker Says:

    [...] We can argue about the latter point, but if there’s any evidence that any of the money making scenarios are going to occur, I’d love to see it. The most fruitful is likely Microsoft trying to upsell premium Vista versions, but until the pricing (particularly OEM and volume pricing) is revealed it’s hard to gauge customer reaction and the resulting payoff. Finally, Microsoft’s client OS’s are currently providing about $14 billion a year in revenue, so $1.5 billion in 18 months is about 7% growth which is less than the PC growth rate. They’re kidding, right? [...]

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