Microsoft 2Q Buoyed By SQL Server, Xbox Launch

For its second fiscal 2006 quarter, closing Dec. 31, the Redmond, Wash., company posted a 5 percent rise in profit. Net income was $3.65 billion, or 34 cents per share, up from $3.46 billion, or 32 cents a share, for the year-ago quarter.

Highlights were the launch of the Xbox 360 game console and SQL Server 2005 and Visual Studio.

The cash cow Office and Windows businesses continued to, well, produce cash. The Information Worker unit, home to Office, logged second-quarter revenue of nearly $3 billion, up from $2.8 billion the previous year. In terms of profit, the overall group posted $2.1 billion vs. $2.01 billion for the year-earlier quarter.

There is concern among Microsoft partners that take-up of Office 2003 has not met expectations for the product, now in its third year of release.

Microsoft execs have said adoption has met expectations, but partners say customers continue to resist upgrading from older versions. The successor, Office 12, is due in the second half of this year.

Solution providers said they expect Microsoft to launch extremely aggressive upgrade programs in the channel to move recalcitrant users of old versions of Windows and Office farther along the upgrade path.

Microsoft has been better “about surfacing new features of Office 12—the challenge in the Office group is to overcome the inertia in the market, the feeling that the current product is good enough,” said Rick Sherlund, partner with Goldman Sachs, New York.

The company&'s Client group, representing Windows client software, generated sales of $3.5 billion, up from $3.2 billion.

Microsoft Business Solutions, which fields ERP and CRM, posted second-quarter revenue of $242 million, up from $207 million for the last-year quarter. The unit posted a profit of $10 million for the period compared to a $17 million loss for the comparable period a year ago.

Doug Burgum, the senior vice president heading that group, said it reached profitability “slightly ahead of schedule.” Expectations were that the group would start making money in 2007.

SQL Server was singled out for attention, claiming 20 percent year-over-year growth. The overall server and tools business grew 14 percent.

Sherlund said servers were an upside surprise. “We thought maybe 9 percent [growth], so 14 [percent] is good,” he noted.