Original URL: http://www.theregister.co.uk/2006/01/27/microsoft_q2_06_earnings/

Xbox dearth takes edge off Microsoft's record quarter

Big sales everywhere else

By Gavin Clarke

Posted in Financial News, 27th January 2006 01:00 GMT

A shortage of components for the Xbox 360 took some of the shine off Microsoft's record second-quarter business results.

Revenue came in below Wall St expectations at $11.83bn - analysts had anticipated $11.93bn - for the period to December 31, the all-important holiday shopping season.

Microsoft sold 1.5m Xbox 360 consoles, lower than expected due to the parts shortage. The company also cut its forecast for units sold during the first 90 days to 2.5m, down from an expected three million, due to capacity constraints.

Problems meant the Xbox business lost $293m compared to a $55m profit for the same quarter the previous year. Soleil Securities analyst Jamie Friedman said. Microsoft had failed to meet even his reduced expectations and lost more money on the Xbox than he'd expected.

Despite these problems, an upbeat Microsoft promised analysts it would hit its previously promised sales targets of 4.5m to 5.5m for the full year. "We believe this is a short-term manufacturing challenge," Microsoft said.

Supply and manufacturing on the Xbox was the one black spot in an otherwise predictably glorious quarter. Microsoft announced a 5.4 per cent jump in income to $3.65bn on a 9.44 per cent jump in revenue to $11.83bn, the highest quarterly revenue in its 30 year history.

Driving revenues were server and tools and the PC client business, with strong sales in Visual Studio 2005 and Dynamics Customer Relationship Management (CRM) that were both launched during the quarter. Microsoft Business Solutions (MBS) - home of Dynamics CRM - and Mobile and Embedded hit profitability for the first time. MBS scored $10m operating income, with the mobile unit on $20m.

Separately, Microsoft refused to confirm reports that Office 12 has been formally christened Office 2007. A company spokeswoman said Microsoft had not yet picked a name. ®