Microsoft Posts Five Percent Growth

Software bellwether Microsoft expects revenue to be between $10.9 billion and $11.2 billion for the upcoming quarter and earnings per share of 32 to 33 cents. Revenue for the full year ending June 30, 2006, is expected to be $44 billion to $44.5 billion, the company said on its earning call Thursday night.

For its most recent second fiscal 2006 quarter, the Redmond, Wash. company posted a 5 percent rise in profits. 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 of the second quarter ending December 31, were the widely anticipated launch of the Xbox 360 game console as well as the debuts of the much-delayed SQL Server 2005 database and Visual Studio toolset.

The cash cow Office and Windows businesses continued to, well, produce cash. The Information Worker unit, home of the Office franchise, had sales of $2.9 billion, up from $2.8 billion the previous year. In terms of profit, the overall group posted $2.1 billion vs. $2.01 billion last year.

While no one can pooh-pooh such numbers, there is nagging concern among Microsoft partners and other observers that take-up of the latest Office 2003 has not met expectations for the product, now into its third year of release. Microsoft execs have said take-up has met expectations but partners say customers continue to resist upgrading from older versions to this edition, now into the third year of its release. 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 Windows and Office along.

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 Client group, representing Windows client software, generated sales of $3.5 billion up from $3.2 billion.

While tiny in comparison, the closely watched Microsoft Business Solutions group, which fields ERP/Accounting applications, posted 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 last years.

The company singled out SQL Server successes for attention, claiming 20 percent growth in that business over last year. The overall server and tools business grew 14 percent, Microsoft said.Sherlund said the server business had a nice upside surprise. "We thought maybe 9 percent [growth] so 14 is good," he noted.