RealTime IT News

Gates' $10.15 Billion Baby

If you want proof of a turnaround in corporate IT spending, look no further than tech bellwether Microsoft .

Sales of inexpensive computers bundled with its software and ad spending on its portal helped the Redmond, Wash.-based software vendor improve its bottom line last quarter. The company took in a whopping $10.15 billion, surpassing Wall Street estimates.

In its earning statement for the quarter ending December 31, 2003, released Thursday, Microsoft execs said revenue was up 19 percent over the $8.54 billion for the same quarter in 2002. But operating income of $1.48 billion was down from last year's $2.23 billion; the company had stock compensation costs of $2.17 billion.

The company said consumer and corporate demand for PCs created double-digit revenue growth for Windows XP and Office products and acknowledged a trend emerging.

"Our performance was driven by strong consumer and corporate PC demand," Microsoft CFO John Connors said in a conference call. "Strength in consumer spending continued, and we began to see improvement in corporate IT as well." The company's forecast for next year assumes consumer spending will continue, and IT departments will open their purses while keeping the lid on costs.

Microsoft promised to keep up its efforts to get enterprise customers to buy Office 2003, Windows Server 2003, Exchange Server 2003, and Small Business Server 2003. "There's no question this is the best and broadest release of Office we've ever had," said Connors. The challenge now, he said, is pricing. "The absolute installed base is large, and growing that is a challenge."

License-only revenue was higher than expected, and that's bad news -- customers aren't as enthusiastic about signing up for Microsoft's Software Assurance program as the company hoped. The big question, according to Connors, is whether remaining Upgrade Advantage customers move to license-only software when their UA licenses expire, or upgrade to Software Assurance. "We're pragmatic," he said. "If they want to buy license-only, we have programs to sell them license-only." Next year's license revenue will be lower in any case, because the Upgrade Advantage program has ended.

Consumer ISP and portal service MSN.com also reported stronger-than- expected revenue growth of 19 percent over last year, with ad sales on the site growing 47 percent from last year. Jaffe said paid search had contributed to the boost in ad revenue. At the end of 2003, the company launched MSN Premium, a paid service, and revamped MSN.com to create more advertising and revenue opportunities.

Meanwhile, the company said it's sold a total of 13.7 million Xbox game consoles since the product launch in 2001, with nearly 750,000 subscribers to its Xbox Live networked gaming service. Revenue from this line of business will be flat in 2004, it said.

For the first quarter of 2004, ending March 31, the company expects revenue from around $8.6 billion to $8.7 billion, with operating revenue of $3.0 billion to $3.1 billion. For next year, management predicted revenue of $35.6 to $35.9 billion, with operating income in the range of $10.3 to $10.6 billion.

"This quarter," Connors said, "Microsoft delivered."