Microsoft on Thursday announced a profit jump of 24% in the first quarter of fiscal 2006 as compared to the same quarter last year based on strong sales in its core platform software.
The company attributed the growth to the solid performance of its core platform software, including SQL Server, which had 15% year-over-year growth, Exchange and Windows Server. The software and tools division saw a 13% growth to $2.53 billion over the same quarter in 2005. Microsoft also cited strong growth in PC and server shipments.
“We are delighted that the value proposition of SQL Server continues to result in such strong product demand,” says Chris Liddell, Microsoft’s CFO. Microsoft will ship SQL Server 2005 on Nov. 7.
The company, however, continues to struggle with adoption of its Licensing 6.0 and Software Assurance volume licensing. Unearned revenue, which is a key indicator of renewals for Software Assurance contracts, fell by about 4% from $8.8 billion from $9.16 billion from the fourth quarter of fiscal 2005.
Scott Di Valerio, Microsoft’s chief accounting officer said the drop matched expectations and said it was represented seasonal purchase patterns for licensing contracts. He noted that the $8.8 billion was a 13% increase over unearned revenue from the same quarter in 2005 and said Microsoft still expects to see 8% to 10% growth through fiscal 2006. Microsoft said renewals for its Enterprise Agreements, which cover licensing for a range of Microsoft products and includes Software Assurance, was between 66% and 75%.
Microsoft’s net income and diluted earnings per share for the first quarter were $3.14 billion and 29 cents per share, including a 2 cents per share charge for the RealNetworks settlement. For the previous year, net income and diluted earnings per share were $2.53 billion and 23 cents per share, including a charge of 3 cents per share for the Novell settlement.
The company’s revenue showed a 6% growth to $9.74 billion over the same quarter last year, while operating income showed a 16% growth to $4.4 billion, excluding the $361 million settlement with RealNetworks.With the adjustment, operating income was $4 billion.
Microsoft, which has been locked in a public battle with Google over search and services technology, said display advertising revenue from MSN was up 20%. Revenue from search advertising, however, was down although Di Valerio did not say by how much. Both Google and Yahoo reported improved search advertising sales in the quarter.
The software maker also reported that Internet access revenue declined 30% as more and more users switch from dial-up to broadband access, which MSN does not sell.
The quarter also was marked by a realignment of Microsoft’s corporate structure from seven business units into three large divisions. The company made additional moves on Thursday, most notably naming veteran executive Bob Muglia as senior vice president of the company’s Server and Tools Business, replacing Eric Rudder.
During the quarter Microsoft delivered the first beta of its next generation client operating system, Vista, which will ship in the summer of 2006, and previewed its Office 12 platform due to ship at the end of next year. Those two product families have historically represented the bulk of Microsoft’s revenues.
The Information Worker division, which includes Office, showed only 4% year-over-year growth, but that was ahead of projections, according to Microsoft.
In the quarter, the company also released its first backup software with System Center Data Protection Manager 2006 and shipped Microsoft Office Small Business Accounting and Small Business Management.
The company also acquired VoIP provider Teleo, e-mail security specialist Frontbridge, and identity management firm Alacris.
For the second fiscal quarter, which ends Dec. 31, Microsoft forecasts revenue in the range of $11.9 billion to $12.0 billion, and operating income in the range of $4.6 billion to $4.7 billion.
