Microsoft sees flat IT biz, issues SARS warning

Servers, services up

Although Microsoft saw income rise in the past quarter, it downplayed any expectations of growth in the PC business.

Redmond reported income of $7,835,000,000 last quarter, down on the $8,541,000.000 it reported in the previous quarter but up on the $7,245,000,000 that poured into the coffers in the corresponding quarter last year.

Microsoft announced a pre-tax profit of $4,168,000,000.

Gleaning sector performance within the company is more difficult. The information disclosed tells us earnings, but not costs from each sector.

So we learn that developer tools, training and certification income leapt 40 per cent in the past quarter. And that "Business Services" income almost doubled. The server OS showed good growth too.

But deprived of the cost of this income, we are unable to tell if each sector is making money. Or if, as last year's 10-Q showed, the desktop monopoly continues to fund a set of sickly basket-case businesses.

This is important information. In branching out into new businesses such as games consoles and mobile phones, Microsoft can expect to sustain heavy losses before turning a profit. As any business would. But is that pain turning into a gain?

We don't know. The financial statement reports that "CE/Mobility" - which encompasses the ailing phone division - saw revenues rise to $38,000,000 from $21,000,000 in the corresponding quarter last year. But what were the costs of that income? Microsoft is now, effectively, a phone manufacturer, so they cannot be insignificant. And without costs, we cannot determine margins. In the phone business, margins are the most closely watched indicator of a vendor's fortune.

No one makes investor statements more user friendly than Microsoft. It does a terrific job, presentation-wise, and other companies should take heed. But even HP's labyrinthine earning statements break down sector-by-sector performance in detail, so investors know which parts of the business are making money, and which are not.

You can try and make sense yourselves, here.

In the risks portion of the disclosure, Microsoft added the SARS virus to the long list of potential liabilities. ®

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