Microsoft SEC filing shows hideous losses except for Windows

Where - surprise - it shows hideous profits

The mysterious shroud surrounding Microsoft's revenues was dispelled yesterday, when the company revealed that it is losing shedloads of money on everything bar client Windows, server and Office software. In these, naturally, it's making even bigger shedloads, but it's abundantly clear who's paying the rent, and financing the assaults into new areas.

The breakdown of financials by division was published for the first time in Microsoft's Form 10-Q filing to the Securities & Exchange Commission, presumably as a side-effect of corporate America's attempt at a post-Enron clean-up. For the period ended September 30th, the two cash cows of Client (i.e. Windows) and Information Worker (Office) produced operating income of $2.48 billion on revenue of $2.89 billion, and $1.88 billion on $2.38 billion respectively.

Server Platforms performed modestly by these standards, but spectacularly by most other people's, chalking up an operating income of $519 million on revenue of $1.52 billion, but beyond that we have the basket cases.

MSN lost $97 million on $531 million, CE/Mobility was out $33 million on $17 million revenues (always a good trick, this kind of stuff), and the home of Xbox, Home Entertainment, dropped $177 million on revenues of $505 million. Business Solutions, which includes Navision and Great Plains, and is a sector Microsoft hopes will contribute great things in the future, lost $68 million on $107 million.

Trend-wise (the numbers for 2001 are broken out as well), the pain of MSN is easing while revenues are increasing. CE/Mobility only pulls in slightly more revenue and has slightly lower losses ($14 million in and $48 million out in 2001), and Xbox has resulted in a revenue boost plus a substantially increased loss for Home and Entertainment (the loss was $68 million on $236 million in 2001). Realistically though we should expect heavy losses in Xbox's first year, because the economics of this kind of business anticipate revenues from games sales to follow as a long tail.

But as we said, it's clear who's paying the rent for these expeditions, and it's also clear that Microsoft is the dominant force in the PC market, and only the PC market. It can afford to shoulder big losses in the areas where it wishes to be the dominant force for a very long time. Which is fortunate, because in several cases these look suspiciously like ventures normal businesses would be forced to put a bullet into. Now. ®

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