Microsoft cruises in Q1

Ups forecast on rosy server revenues

By Ashlee Vance, 21st October 2004

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Microsoft continued to pump out plenty of cash in its core businesses and managed to cut losses in underperforming units during its first quarter.

The software maker posted $9.2bn in revenue during the period - a rise of 12 per cent over last year's Q1 revenue total of $8.22bn. As always, Microsoft cleared a handsome profit as well, generating net income of $2.9bn. In the same period last year, Microsoft reported net income of $2.6bn.

The company pointed to particular gains with its server and desktop efforts as drivers of the revenue growth. Its Server and Tools business, which includes Windows Server, SQL Server and Exchange Server, increased revenue by 19 per cent to $2.2bn. Microsoft's client software business posted revenue of $3bn versus $2.8bn last year. Its other big money maker - the Information Worker segment (which includes Office) - rose 14 per cent to $2.6bn in revenue. MSN grew about 10 per cent to $540m, Mobile and Embedded Devices (which includes software for phones and PDAs) grew to $69m from $53m and Home Entertainment (which includes the Xbox) grew to $632m from $581m.

"We've had a strong beginning to what we expect will be a very good year with continued growth in both our commercial and consumer businesses," said John Connors, CFO at Microsoft. "This quarter we had a very healthy commercial server and desktop business driving double digit revenue growth, and we expect to continue the trend of growing revenue faster than expenses as we work to make each of our businesses more efficient and profitable."

Microsoft's Business Solutions, Mobile and Embedded Devices and Home and Entertainment groups remained unprofitable, although each unit cut its losses.

Microsoft expects second quarter revenue to come in between $10.3bn and $10.5bn. It also raised the full year revenue forecast to be between $38.9bn and $39.2bn - up from an earlier prediction that topped out at $38.8bn. ®