Feeds

Slow Win2k uptake, flagging Office sales dog MS Q4

But $1 billion of investment income comes in handy...

  • alert
  • submit to reddit

Secure remote control for conventional and virtual desktops

Almost without it being noticed, Microsoft has transformed itself from a software company to an investment company. The Q4 results announced last night show investment income up 132 per cent compared with the year-ago quarter. Investment income of $1.127 billion in the quarter represented 32 per cent of Microsoft's income before taxes. It was clear from the results that Microsoft's investments have been performing more profitably than its products, with the operating income showing 30 cents/share coming from products and 14 cents from investment income and interest.

The financial analysts were noticeably subdued about a lacklustre quarter which may represent a sea-change in Microsoft's income model: they know too well the vulnerability of Microsoft's portfolio to the market's whims.

On the asset side, Microsoft has never been stronger, with $24 billion in cash (up from $17 billion a year earlier), and $18 billion in investments, up from $14 billion, so Microsoft's cash and equity investments were worth $41.424 billion on 30 June.

Revenue for the quarter was almost flat at $5.804 billion, up just 0.69 per cent on the year-earlier quarter, compared with the 23 per cent increase seen in Q3. Microsoft's ability to recognise revenue more or less as it pleases, may have been helpful here, allowing it to show this very small increase rather than a potentially headline-grabbing loss. The FY2000 revenue increased 16 per cent to $22.96 billion, and the profit was $9.42 billion, up 21 per cent.

Microsoft's operating income was down 13 per cent for the quarter, primarily reflecting a 10 per cent decline in the sales of MS Office and tools, with Windows sales up 6 per cent, and consumer group sales up 34 per cent (but with unknown losses, despite the increase). Microsoft's productivity (mostly Office) division now makes 45 per cent of Microsoft's revenue, Windows 42 per cent, and the consumer stuff 14 per cent.

Office 2k slowdown

Office sales are decelerating, and a further decline is expected by financial analysts like Drew Brosseau of SG Cowen, who suggests that Microsoft's applications business will grow at 12 per cent in FY2001, compared with 18 per cent in FY2000 and 25 per cent in FY 1999. Microsoft will have a tough time making up the difference from Windows sales. With the continuing refusal to break down Windows 2000 sales to show the proportion of the higher-priced server sales ($319 for the workstation version, compared with $1,199 or $3,999 for the server versions), the suspicion lurks that the picture is worse than Microsoft has been suggesting. Even stalwart-supporter Rick Sherlund of Goldman Sachs said at the end of last month that he was "not impressed" by the sales of Windows 2000.

Geographically, the South Pacific and Americas region and EMEA were down, but balanced by a small rise in the Asia region. Microsoft said Germany and Italy produced healthy results, but the UK was a laggard. OEM sales were up 5.6 per cent in the quarter, and 10 per cent for the year.

The usual excuses were trotted out for the disappointing quarter, with Connors suggesting that Windows 2000 has a longer adoption cycle because it is not a consumer product. COO Bob Herbold attributed the disappointing results to a downturn from Y2K and weak business PC sales, but refused to concede that Office 2000 is losing its relevance in the market place.

The outlook for the financial year that started on 1 July was for a lower first quarter, according to CFO John Connors, with earnings of 41 cents/share - two cents below analyst expectations. He expected revenue to increase 5 pe rcent in Q1, and 15 per cent for FY2001. Windows ME, expected in September, is not expected to have much financial impact, Connors said. He expects Windows 2000 sales to be up in mid-teen percentages in Q1, and 20 per cent for FY2001, and that applications would be flat in Q1. These estimates could prove to be optimistic judging by the over-optimistic earlier estimates, and the significant downward trend of Office sales.

Next generation still a way off

So far as future revenue from .NET or the ASP model was concerned, these would have no impact in FY2001, Connors said, and it would be three to five years before there would be income from ASP.

As for share buybacks, Connors said that there were no plans "at this time" to reinstate the programme. Microsoft acquired Visio in January for 14 million shares, and was then prevented by accounting rules from buying back any more stock until the beginning of July, so missing the chance to snap them up when their value had more than halved since December. At the end of June, Microsoft had 157 million outstanding put warrants that could be exercised by the owners at strike prices between $70 and $78 from September to December 2002. There were 832 million vested and unvested options outstanding, and 5.283 billion shares outstanding.

Microsoft has become a mature company (in the revenue sense only, of course) and is looking more and more like Computer Associates. Business users at present seem to be focussing on network and desktop management, and it remains to be seen whether they will toe Microsoft's line and buy Windows 2000 when it gets round to releasing service pack 1.

In best ostrich-fashion, Microsoft's legal woes are being ignored, although during the financial analysts call, Herbold said in response to a question that he expected the Supreme Court to decide whether to hear the appeal itself in late September or early October.

Shareholders appear to be more concerned about disappointing sales of PCs during the last three quarters. Netscape founder Jim Clark is not too concerned however: he said yesterday that "Now I own some stock in them [he admitted to having a million Microsoft shares], I kind of like them". ®

Top 5 reasons to deploy VMware with Tegile

More from The Register

next story
Google+ goes TITSUP. But WHO knew? How long? Anyone ... Hello ...
Wobbly Gmail, Contacts, Calendar on the other hand ...
Preview redux: Microsoft ships new Windows 10 build with 7,000 changes
Latest bleeding-edge bits borrow Action Center from Windows Phone
UNIX greybeards threaten Debian fork over systemd plan
'Veteran Unix Admins' fear desktop emphasis is betraying open source
Microsoft promises Windows 10 will mean two-factor auth for all
Sneak peek at security features Redmond's baking into new OS
DEATH by PowerPoint: Microsoft warns of 0-day attack hidden in slides
Might put out patch in update, might chuck it out sooner
Google opens Inbox – email for people too stupid to use email
Print this article out and give it to someone techy if you get stuck
Redmond top man Satya Nadella: 'Microsoft LOVES Linux'
Open-source 'love' fairly runneth over at cloud event
prev story

Whitepapers

Cloud and hybrid-cloud data protection for VMware
Learn how quick and easy it is to configure backups and perform restores for VMware environments.
A strategic approach to identity relationship management
ForgeRock commissioned Forrester to evaluate companies’ IAM practices and requirements when it comes to customer-facing scenarios versus employee-facing ones.
High Performance for All
While HPC is not new, it has traditionally been seen as a specialist area – is it now geared up to meet more mainstream requirements?
Three 1TB solid state scorchers up for grabs
Big SSDs can be expensive but think big and think free because you could be the lucky winner of one of three 1TB Samsung SSD 840 EVO drives that we’re giving away worth over £300 apiece.
Security for virtualized datacentres
Legacy security solutions are inefficient due to the architectural differences between physical and virtual environments.