Sparked by its Server and Tools business unit, Microsoft on Thursday reported net income of $2.56 billion for its fiscal third quarter, nearly double the amount of profit compared to the same quarter a year ago.
Last year in the same quarter, however, Microsoft used cash to settle a legal dispute with Sun.
Revenue for the quarter, which ended March 31, was $9.62 billion, a 5% increase over the same quarter in 2004. The revenue results were below the expectations of analysts surveyed by Thomson Financial, who predicted the company would post $9.83 billion in revenue.
Regardless, Microsoft officials were upbeat not only for the quarter, but with year-end predictions and estimates for fiscal 2006. Microsoft’s fiscal year runs from July 1 to June 30.
“We had a good quarter and a good fiscal year to date,” said Scott Di Valerio, corporate vice president and corporate controller. Microsoft’s new CFO, Chris Liddell, who was named to the post April 25, was not on the conference call held with financial analysts and media.
“Our read is that IT and corporate spending were healthy during the quarter,” said Di Valerio. “Server and Tools [business unit] had yet another quarter of double digit revenue growth, as this business consistently comes through for us. SQL and Exchange are firing on all cylinders with over 15% and 20% [revenue] growth respectively.” Overall, the Server and Tools business showed a 12% revenue growth over the same period last year.
On the profit side, the Server and Tools business posted a 34% gain over the same quarter last year, easily outdistancing the historic cash cows: Client, which reported an 8% profit growth, and Information Worker (Office), with a profit growth of 2.4%. Those two divisions, however, still account for the lion’s share of Microsoft’s profits with Client posting $2.3 billion and Information Worker $2 billion in the third quarter. Server and Tools profits were $824 million.
Other good news for Microsoft came in its unearned revenue numbers for its volume licensing 6.0 program, which were relatively flat in the third quarter compared to last year. Analysts had been expecting a drop.
The unearned revenue, which reflects revenue to be earned on quarterly or yearly payments on multi-year licensing contracts, is a reflection of the health of Microsoft’s volume licensing programs, which include Select, Open and Enterprise Agreement contracts.
Di Valerio did say, however, that in the fiscal fourth quarter $2.5 billion worth of licensing contracts will expire. Therefore, the numbers posted in the fourth quarter should provide another glimpse into corporate acceptance of the licensing program, which has had a rocky past.
“We expect our unearned revenue at the end of June to be up from our prior guidance of $8.6 million by a couple of hundred million dollars,” said Di Valerio.
Overall, the guidance that Microsoft issued for the fiscal fourth quarter was ahead of expectations. The company said that fourth quarter revenue would be between $10.1 billion and $10.2 billion, slightly ahead of the consensus Wall Street estimate of $10.07 billion.
Microsoft also made its first statements about fiscal 2006, predicting that sales would range from $43.3 billion to $44.1 billion, a nearly 10% increase over estimated 2005 sales levels. Wall Street estimates are $43.3 billion.
