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Microsoft Racks Up Another Jaw-Dropping Quarter

Microsoft rode strong Windows 7 and server software sales to a successful Q1, and pointed to signs that the business technology spending freeze may finally be thawing.

Microsoft's traditional cash cows in its client and server software business continue to propel the software giant to quarterly financials that make competing CEOs drool with envy, even as the company transitions into the great unknown of cloud computing.

In Microsoft first quarter earnings call Thursday, the company reported profit of $5.4 billion, or 62 cents per share, a 51 percent jump from the $3.6 billion and 40 cents per share it racked up in the year-ago quarter. Microsoft also saw bookings rise 24 percent during the quarter.

Microsoft Q1 revenue grew 25 percent year-over-year to $16.2 billion. Wall Street analysts had expected revenue of 15.8 billion and earnings of 55 cents per share, according to Thomson Reuters.

The trusty revenue engines of Exchange, Sharepoint, Dynamics CRM and Lync (formerly Office Communications Server) all grew "healthy double digits," Microsoft CFO Peter Klein said in the call. Overall, Microsoft's Server and Tools Business saw revenue grow 12 percent during the quarter.

Microsoft Office 365, its newly unveiled suite of cloud apps that includes the re-branded Business Productivity Online Suite (BPOS), will enable new growth opportunities for Microsoft and its partners and will be available "in calendar 2011", said Klein.

Next: How Windows Azure Is Faring


Windows Azure subscriptions grew 40 percent compared to last quarter, and Microsoft is adding new enhancements to help customers build new apps and migrate existing ones to the cloud, Klein said. The number of business customers licensing Microsoft's cloud services has more than tripled during the past year, he said.

"Customers of all sizes are buying Microsoft cloud services," Klein said during the call. "Microsoft has significant cloud momentum and we are leading the industry through this transformation."

Microsoft's Online Services, which hasn't been doing well lately, grew 8 percent during the quarter, including 13 percent growth for Bing, which is now powering Yahoo's algorithmic and paid search results in the U.S.

On the client side, Windows 7, for which Microsoft has sold more than 240 million licenses to date, had its fourth straight quarter of double digit growth, with OEM revenue growing 11 percent during the quarter. Windows revenue rose 66 percent to $4.8 billion, compared to $2.9 billion during last year's Q1. Desktop PC sales growth is stronger in businesses than it is with consumers, Klein said.

Microsoft noted that its results included $1.5 billion in deferred revenue from last year's Q1 that stemmed from its Windows 7 upgrade program and Windows 7 licenses sold to customers in advance of the October 2009 launch. Microsoft's revenue grew 13 percent when this is taken into account.

Next: What about the tablet cannibals?


The much talked about prospect of tablet PCs eating away at traditional PC sales -- which has come to be known as "cannibalization" -- was raised by financial analysts in a Q&A after the call, but Klein said Microsoft hasn't seen a material shift away from low- end PCs as a result of the iPad and other tablets. In fact, "We're seeing a strong pipeline of demand for new Windows form factors," he said.

Even Enterprise Agreements, Microsoft's volume licensing package for large businesses, appears to be making a recovery. Klein said the multiyear licensing portion of its business grew five percent during the quarter, and in a Q&A after call added that "enterprises want to invest with someone who can make transition from on premise to cloud as soon as possible."

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