Microsoft’s Q2 Breaks Revenue Records

Microsoft earnings and Windows 7

Microsoft on Thursday reported $19.02 billion in revenue for its second quarter of fiscal 2010, breaking previous records and surging 14 percent ahead of the same quarter last year.

In a statement, Microsoft (NASDAQ: MSFT) said that for the quarter ending Dec. 31, net income came in at $6.66 billion, with earnings per share (EPS) at $0.74.

Those figures grew 60 percent and 57 percent, respectively, from the year-ago quarter.

After recognizing deferred revenue of $1.71 billion related to its Windows 7 Upgrade Option Program and pre-sales of Windows 7 to OEMs and retailers prior to the consumer launch in late October, the company said it had diluted earnings per share of $0.60 — a cent higher than Wall Street’s earlier consensus, according to Thomson Financial.

That’s also significantly higher than a year ago, when the company brought in income of $4.2 billion, or $0.47 per share, on revenue of $17.8 billion.

Officials credited Windows 7, which launched during the quarter, for much of the gains.

“Exceptional demand for Windows 7 led to the positive top-line growth for the company,” Peter Klein, Microsoft’s freshly-minted CFO, said in a statement.

Microsoft said it had sold more than 60 million Windows 7 licenses by the end of the quarter, which the company claims makes it the “fastest-selling operating system in history.”

The breakout performance shows that “the economy is picking up and people are buying new PCs,” Matt Rosoff, research vice president for corporate news at industry researcher Directions on Microsoft, told “That’s a strong indication that the holiday sales season, which falls inside the second fiscal quarter, was a good one.”

Last year, the company missed analysts’ expectations for its second fiscal quarter, it to cut 5,000 workers in the first major layoffs in Microsoft’s 35-year history.

While Microsoft had projected that the layoffs might take as long as 18 months to conclude, it completed the staff reductions by last summer.

In early November, however, Microsoft announced it would cut an additional 800 workers, after a lackluster first quarter that still beat analysts’ expectations.

For the first quarter of fiscal 2010, which ended Sept. 30, Microsoft reported $3.57 billion in net income — a drop of 18 percent from a year ago — with EPS of $0.40, well ahead of EPS of $0.32 predicted by analysts. That was down slightly from the same quarter in fiscal 2009 when Microsoft delivered EPS of $0.34.

At press time, shares of Microsoft stock were trading up 0.17 percent in after-hours trading, at $29.21‎.

During a conference call with financial analysts, company officials said that IT spending hasn’t yet rebounded as well as had been hoped. For instance, in the Business Division, which owns Office, consumer sales rose 12 percent but overall year-over-year revenues in the division were down three percent to $44.75 billion.

Annuity sales to corporate customers remained flat, partly driven by customers waiting for Office 2010, which is set to ship by the end of the fiscal year in June.

While strong overall, the consumer sector had some problems as well. Sales of Xbox 360 game consoles, which many observers had expected to be robust during the holiday season, declined by 13 percent. Even with 35 percent growth in Xbox Live subscriptions to 23 million members, games attach rates declined and the Entertainment & Devices Division’s revenues fell 11 percent YoY to $2.9 billion.

Another traditionally strong market for Microsoft, the Server & Tools division, rose just two percent from a year ago to $3.84 billion.

Klein held up Office 2010, which ships in June, and “Project Natal” – the upcoming Xbox “controllerless game controller add-on for Xbox 360” – as promising money makers for fiscal 2011, which begins July 1.

“Xbox is in a great spot right now and, with Natal, there’s an exciting year coming up,” Klein said.

As it has done since this time last year, Microsoft again did not give any guidance as to how the rest of fiscal 2010 is likely to play out, except to reaffirm that the company is on track to hold operating expenses to between $26.2 billion and $26.5 billion for the year.

Updated to add comments from the analyst call.

Stuart J. Johnston is a contributing writer at, the news service of, the network for technology professionals.

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