Microsoft rides corporate upgrade cycle, crushes Q4 target

Summary:Microsoft's fourth quarter was much better than expected as it rode growth in its server and tools unit, the corporate PC upgrade cycle and its business division, which features Office.

Microsoft's fourth quarter was much better than expected as it rode growth in its server and tools unit, the corporate PC upgrade cycle and its business division, which features Office.

The company reported fourth quarter earnings of $5.87 billion, or 69 cents a share, on revenue of $17.37 billion, up 8 percent from a year ago.

Wall Street was looking for earnings of 58 cents a share on revenue of $17.23 billion.

For fiscal 2011, Microsoft reported earnings of $23.15 billion, or $2.69 a share, on revenue of $69.94 billion, up 12 percent from a year ago. Shares of Microsoft were mixed afterhours on concerns about the company's earnings quality---its fourth quarter tax rate was lower than expected.

Microsoft's quarter was notable on a few fronts. First, Microsoft's server and tools division's fourth quarter revenue nearly matched the Windows unit due to better growth. Microsoft's business division, think Office, delivered revenue of $5.77 billion with an operating profit of $3.68 billion. To sum it up, Microsoft is being carried by enterprise spending and appears to have three cash cows. The last one, servers and tools, is more like a skinny cow now, but plumping up. Here's the financial breakdown of Microsoft's divisions.

That picture yields the following takeaways.

  • Microsoft's Business division continues to ride Office as corporations continue to deploy Office 2010. Meanwhile, Microsoft Lync and SharePoint are posting double-digit growth. Lync is the unified communications juggernaut overlooked by the masses.

  • Server and tools have become a strong performer based on Windows Server as well as System Center, a suite that manages Windows environments. In terms of revenue, server and tools are close to eclipsing Windows. Operating profit still favors the Windows unit by a wide margin.

  • As for the Windows and Windows Live division, Microsoft's financials are tracking the broader market. Consumer PC demand was down 2 percent, but enterprises are adopting Windows 7. Until Windows 8 emerges, this unit is going to depend on enterprise demand.
  • Microsoft's online services unit continues to astound. The more it grows the more money it loses. Bing is the star of the unit, but Microsoft is struggling to improve revenue per search metrics. This unit managed to deliver a fourth quarter operating loss of $728 million on revenue of $688 million. For fiscal 2011, Microsoft's online efforts lost $2.55 billion.
  • The unit that houses Xbox continues to shine. Xbox 360 is the No. 1 console and Kinect is a hit. On the phone side of the division, Microsoft is prepping to launch Mango, its latest Windows Phone 7 effort, in the fall. The catch? The entertainment and devices unit had a fourth quarter operating profit of $32 million, a drop in Microsoft's earnings bucket. For fiscal 2011, the Xbox unit delivered an operating profit of $1.32 billion on revenue of $8.91 billion.

See also:

Topics: Banking, Enterprise Software, Microsoft

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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