Microsoft Reports Strong Windows Upgrade Demand From Businesses In Q3


Growing numbers of businesses upgrading desktop PCs -- and the Windows and Office software that come with them -- help drive moderate growth for Microsoft in its third fiscal quarter.

The results come as Microsoft gets set for what's likely to be a busy year of new product releases in fiscal 2013 (starting July 1), including Windows 8, a new release of the Office application suite, Windows Server 2012 and a new version of Visual Studio.

"Our product portfolio is stronger than it has ever been," said CFO Peter Klein in a conference call with financial analysts late Thursday. He cited the upcoming "unprecedented refresh of our major products" as likely to fuel growth in the new fiscal year.

For the third quarter ended March 31 Microsoft reported revenue of $17.4 billion, up 6 percent from $16.4 billion in the third quarter of fiscal 2011. Net income was $5.1 billion, down 2.4 percent from $5.2 billion one year earlier. The year-ago income included a one-time tax benefit of $461 million.

Klein said the worldwide PC market grew between 2 and 4 percent while the business PC market grew 8 percent, fueling sales of Windows and Office. "Our business desktop offerings remain a top priority for CIOs. This quarter, businesses continued to refresh their (PC) hardware. And as a result, we saw healthy growth in business PCs around the world.

The Windows and Windows Live Division reported revenue of $4.62 billion, up 4 percent year-over-year. Klein said that 40 percent of business PCs are running Windows 7, the newest release of the operating system, leaving a great many still running the decade-old Windows XP.

In the current quarter, sales of business PCs are expected to continue outselling consumer PCs, Klein said.

Strong sales of Office 2010 helped drive the Microsoft Business Division's revenue growth, up 9 percent from the prior year to $5.81 billion. Sales of the division's Dynamics applications grew 11 percent while sales of Dynamics CRM applications grew 30 percent. Sales of Microsoft Lync communications software were up 35 percent in the quarter.

The company's Server & Tools business remained the company's fastest growing operation with sales increasing 14 percent year-over-year to $4.57 billion. Sales of the SQL Server database grew by double digits, Microsoft said, while System Center sales were up more than 20 percent. Klein said sales of those products are likely to accelerate given the releases of SQL Server 2012 and System Center 2012 this month.

The Online Services Division reported sales growth of 6 percent to $707 million. The Entertainment & Devices Division, however, posted a 16 percent decrease in sales to $1.61 billion, "reflecting the soft gaming console market," the CFO said.