Microsoft Grows on Enterprise PC Refresh

Microsoft recorded an 11 percent rise in profits for its fiscal first quarter, fueled by a “very healthy commercial server and desktop business,” company execs said Thursday.

For the period ending Sept. 30th, the Redmond, Wash.-based software giant posted a profit of $2.9 billion (27 cents per share), up by 11 percent compared to net income of $2.6 billion (24 cents per share) the same time last year. Without some compensation expenses, Microsoft said it would have earned 32 cents a share for Q1. Analysts polled by Thompson First Call predicted 30 cents a share.

Revenues also grew by about 12 percent to $9.19 billion from $8.22 billion the same time last year.

The company’s growth is consistent with the positive growth in the PC market fueled by cyclical enterprise upgrades. Research firms IDC and
Gartner released
reports
this week showing commercial sales in the U.S. bolstering
the sector. Dell and HP both recorded strong growth — both strong
Microsoft OEM partners.

During a conference call with investors, Microsoft Vice President
Scott Di Valerio said the company’s Windows OEM licenses rose 6 percent during the quarter — a number that could have been higher had it not been for a nagging problem with illegal bootlegging of the Windows OS.

Going forward, the company did not say it expected to lose any
revenue as a result of its recent shift in
licensing
toward treating multi-core computer processors as
individual licenses. Di Valerio said Microsoft’s Q2 revenue should lie
between $10.3 billion and $10.5 billion and that its year-end revenue is
expected to be in the range of $38.9 billion and $39.2 billion.

“We feel very good about that renewal pipeline and where we’re at,” Di Valerio said. “Historically we’ve added more software to every one of those contracts than they originally had. We feel positive about our direction and how we’ll do the rest of the year.”

On the enterprise side, the company said its Server and Tools revenue
grew 19 percent, driven by high interest in Windows Server, SQL Server
and Exchange Server.

“In addition to the success of our flagship server products, we
continue to be very pleased with the customer momentum for our
management products. The recent release of Microsoft Operations Manager
2005 and the upcoming release of Microsoft System Center 2005 are
creating excitement in the market, as evidenced by the greater than 20
percent revenue growth this quarter in our management server business.
This is another example of integrated innovation across the entire
Windows Server System adding business value for our customers,” Eric
Rudder, senior vice president, Server and Tools group said in a
statement.

Microsoft said it was also seeing an up tick in its developing market
strategies. At Gartner’s IT symposium yesterday, CEO Steve Ballmer
touted Microsoft’s Business Solutions group, which includes applications like Great Plains, Navision, Axapta, and Solomon.

“When we say Business Solutions, we’re not targeting the largest
enterprises. We’re not going to bid on re-engineering the supply chain
at General Motors,” Ballmer said. “That’s not part of the design point,
because we think it stretches too far in terms of the complexity it adds
that would simply put the product out of the simplicity bin needed for
the current customers that we target. But when I say we target companies
that are a billion, $2 billion, $3 billion in revenue, those are
enterprises. They’re not all mom-and-pop grocery stands, they are real
enterprises.”

Microsoft said its consumer-focused businesses also performed well in
Q1. Its MSN portal recorded revenues that were 10 percent better over
last year due to a continued strength in its Internet advertising
business. Sales of Microsoft’s Xbox consoles and games also helped
propel its Home and Entertainment revenue 9 percent over last year. The
company confirmed its highly anticipated Halo 2 video game should launch
on November 9th with pre-orders currently reaching 1.5 million.

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