Microsoft 3Q Sales Grow

Microsoft posted a 17 percent increase in revenue to $9.2 billion amid an IT spending turnaround last quarter and attempts by the company to settle its litigation woes globally.

During its third-quarter earnings call last Thursday, Microsoft CFO John Connors said 16 percent growth in the Windows client business, 25 percent growth in the Windows server business, 17 percent growth in OEM licenses and 14 percent growth in PC unit shipments indicate that the long-awaited IT sector turnaround is finally here.

"It demonstrates we are in the midst of a corporate recovery," said Connors. "We expect the improvement we see in corporate spending to continue through the fiscal year. Corporate profits are up, and customers seem more willing to invest in IT projects."

Microsoft made significant progress on the legal front last quarter by settling cases brought against it by Sun Microsystems, InterTrust, the state of Minnesota, and multiple class-action cases. It also paid off a $600 million fine levied against it by the European Commission. The deals and other charges slashed Microsoft third-quarter profits in half,to $1.3 billion.

But even as it tries to resolve its legal nightmares, Microsoft faces challenges to its fiscal health due to licensing woes and unresolved issues with the European Commission in the coming months.The commission last week issued a scathing antitrust decision against the Redmond, Wash., company and ordered it to sell a stripped-down version of Windows without Media Player in the European market and to give more technical information to competitors.

In the United States, the Department of Justice and the state of Massachusetts criticized Microsoft's protocol licensing program, claiming that technical documentation provided to competitors is inadequate.

At a hearing last week before the U.S. District Court, Microsoft agreed it would make changes to the technical documentation and offered to extend the licensing program two years past the current expiration date, to 2009. Microsoft also named former treasurer Brent Callinicos corporate vice president of the licensing and pricing unit to solve product licensing issues.

Adam Lipson, CEO of Network & Security Technologies, said the moves show that money talks, and Microsoft is listening. "Microsoft's formula for making great products is responding to their customers' needs, and this formula is rooted in a healthy capitalist spirit that recognizes their primary responsibility to their stockholders. If you impact their stock price, they will change," he said.