Microsoft Sees Bright Spots For Q4

The company also expects server shipments for the full year to hit 13 percent to 15 percent growth, with Windows servers outpacing growth in the overall segment, Microsoft controller Scott Di Valerio told press and analysts Thursday.

For its current fourth quarter, Microsoft expects revenue to grow 9 percent to 10 percent, for $10.1 or $10.2 billion, compared to the year-ago quarter. Revenue for the full fiscal year 2005 is expected to reach $39.7 to $39.8 billion, up 8 percent from a year ago.

It expects its Windows client business to grow at an 8 percent to 9 percent clip, lagging the overall PC shipment figures because of a decrease in commercial and retail licensing and stronger relative sales within developing countries that have high piracy rates, Di Valerio said.

Information Worker group revenue, anchored by Office, is expected to rise slightly by 3 percent to 4 percent; and Microsoft Business Revenue to hit the $245 million mark, up from $185 million for the most recent quarter.

For the upcoming fiscal 2006, Microsoft forecast revenue of $43.3 to $44.1 billion, up 9 to 11 percent over the current fiscal year, Di Valerio said. "On a dollar basis, that trnaslates to $3.5 to just under $4.5 billion in incremental revenue growth year over year," he said.

Operating income is expected to come in between $18.3 billion to $18.9 billion with diluted earnings per share between $1.26 to $1.30.

The executives again cautioned that much depends on volume license renewals.

"There is a significant amount of contract value up for renewal in the fourth quarter 2005 [and] although we expect renewal rates to be in line with our historical experience [of 66 to 75 percent renewals], but you should know our ability to renew them will impact FY 06 revenue and beyond," Di Valerio said.

Looking back, for its third quarter ending March 31, 2005, Microsoft logged $9.62 billion in revenue, up nearly 5 percent from $9.18 billion a year ago. It earned 23 cents a share on net income of $2.56 billion up from 12 cents per share or $1.32 billion last year.

By product segment, Microsoft saw slight growth -- 2 percent in its client business, including Windows XP -- to $2.99 billion. The company said commercial and retail licensing in that P&L fell 18 percent. That falloff was "a little steeper than we anticipated," said Curt Anderson, Microsoft's general manager of investor relations. "Hopefully that annuity licensing for clients will start to turn around."

The server and tools business showed solid 12 percent growth, driven by 15 percent and 20 percent growth in SQL Server and Exchange Server sales respectively.

Microsoft Group Vice President Jim Allchin told CRN recently SQL Server 2000 sales remained surprisingly strong given its relatively ripe-old age of five years. "SQL Server is doing very well even though it's been a long time since we updated. Of course there is an update [SQL Server 2005] coming this year, before the end of year -- a huge monster release in terms of impact."

Revenue from the Information Worker group was up 2 percent to $2.77 billion from the third quarter last year. That number encompasses anticipated fall off in Upgrade Advantage licenses of $154 million, the company said.

Microsoft Business Solutions, with its Axapta, Navision, Great Plains, and CRM applications showed 3 percent growth year over year to $185 million. That included a fall off in services revenue and online business, which in the past the company has attributed to more sales and services going through partners.

Many say MBS, formed mostly from acquisitions, has yet to hit its potential. But last quarter, Doug Burgum, senior vice president maintained that MBS is still in investment mode and Microsoft as a whole is committed to this potentially lucrative business. Microsoft again cited a decline in services revenue and online business for MBS.

"While [MBS] results may not be as strong as people want, we've done a lot of work on sales and channels and we're starting to see some payoff. The Convergence show and product roadmap were very well received," Di Valeria said Thursday. Microsoft outlined its Project Green product roadmap at Convergence, the annual MBS customer conference in March.

Some analysts on the call seemed to worry that the company is in the doldrums due to delays to important products like the Longhorn version of Windows, widely publicized security issues and the continued reluctance of large customers to upgrade to the two-year-old Office 2003.

One analyst wanted to know how the company intended to spur growth in the nearer-term, pre-Longhorn era. The Longhorn client is slated to hit beta this summer and ship at the end of 2006. And, as usual there were concerns that large customers continue to resist renewals to volume license agreements, a factor Anderson alluded to in one answer.

"Hopefully as customers get more clarity around Longhorn both [in terms of ] ship date and feature set, customers will get enthusiastic and come back into volume licenses," Anderson said.