Redmond’s Big Spender

It’s party time for Microsoft. Launch parties, that is.

Microsoft already has begun spending on the wave of new products it’s been talking about since 2003: Windows Vista, Visual Studio 2005, .NET Framework 2.0, SQL Server 2005 and BizTalk Server 2006, Office 12 and Exchange Server 12 all will be released by the end of calendar year 2006, along with the Xbox 360 game console.

In a conference call with analysts on Thursday, Christopher Liddell, Microsoft CFO, and Scott Di Valerio, corporate vice president, finance and administration, said that revenue growth of 6 percent was in line with expectations, while the impact of spending on the product launches has been felt from the beginning of the fiscal year.

Analysts questioned Liddell closely about how the product launches might affect quarterly revenue and growth.

He said the company is trying to even out its spending. Admitting that demand for the Xbox 360 would exceed the supply at the launch, he said that Microsoft is on track to meet the expected demand by the second quarter of 2006. “We hope to avoid peaks and troughs later in the year,” Liddell said.

The once lagging business applications segment, formerly Microsoft Business Solutions, but rebranded to Microsoft Dynamics, perked up a bit, although the $181 million in revenue is a drop in the $9.74 billion bucket of total revenue. ERP and CRM applications were the strong sellers.

The profitable MSN’s revenue grew just 1 percent year-over-year. Although ad revenue grew by 20 percent, it was offset by a sharp decline in revenue from the dialup Internet access business, something Microsoft is letting die.

“Search advertising revenue was not as strong as we’d like,” Liddell said. Most of the money came from display advertising, something the Web portal excels at. Earlier this month, MSN began testing adCenter, its new pay-per-click advertising platform, in the U.S. “We continue to work on adCenter, and we expect this work to result in improvements over time,” Liddell said.

MSN expects revenue growth of no more than 2 percent for the full fiscal year, despite ad revenue growth of 15 to 20 percent, with the lion’s share still coming from display advertising.

Microsoft is late to the search advertising party. It began using its own search technology in November 2004, and relied on pay-per-click advertising from Yahoo .

News Around the Web