New hires, datacenter investments evident in Microsoft earnings

Summary:There are lots of meaty bits buried in the Microsoft Q4 2007 and year-end fiscal 2007 balance sheets -- including the cost of rapidly growing headcount across various divisions, as well as the huge expense Microsoft is incurring to build out its datacenters to support its Live strategy.

Most of the reports of Microsoft's fiscal Q4 2007 and full year results are focusing on how the $1 billion one-time charge Microsoft took to offset Xbox hardware failures affected the company's bottom line.

But there were lots of other meaty bits buried in the Microsoft balance sheets -- including the cost of rapidly growing headcount across various divisions, as well as the huge expense Microsoft is incurring to build out its datacenters to support its Live strategy. The Microsoft watchers over at Liveside.Net noticed this online-services spending spree, as well.)

For its fiscal year, Microsoft had $51.12 billion in revenue and earnings of $1.42 a share including charges. (Excluding charges earnings would have been $1.49 a share. )

Microsoft CEO Steve Ballmer warned Wall Street a year ago that Microsoft was planning to do some serious spending, especially in its up-and-coming businesses. He wasn't kidding.

Microsoft's Online Systems Business, which is the group overseeing Live (including Live Search), MSN and adCenter among other products, grew revenues in the fourth fiscal quarter primarily as a result of advertising revenue, which Microsoft said was up 33 percent over last year's Q4, to $544 million.

On the down side, according to Microsoft:

"OSB operating loss increased driven primarily by increased cost of revenue which grew $98 million or 42% and increased headcount-related costs as a result of continued search and advertising platform investments. The increase in cost of revenue was primarily driven by increased data center costs, online content expenses, and royalties. Headcount-related costs increased 15%, driven by a 12% increase in headcount and an increase in salaries and benefits for existing headcount."

For the full year, Microsoft's hefty spending on OSB people and infrastructure really came through:

"OSB operating loss increased driven primarily by increased cost of revenue which grew $352 million or 45% and increased headcount-related costs as a result of continued search and advertising platform investments. The increase in cost of revenue was primarily driven by increased data center costs, online content expenses, and royalties. Headcount-related costs increased 30%, driven by a 12% increase in headcount and an increase in salaries and benefits for existing headcount."

Microsoft also added a lot of people in other divisions, according to its financial statement. The amorphous "corporate" category -- which includes broad-based sales and marketing, product support, human resources, legal, finance, IT and R&D -- grew its headcount 19 percent in Microsoft's fiscal fourth quarter. For the year, the corporate catch-all category grew its collective headcount by 19 percent (25 percent, when you add benefits).

This must be all those new patent lawyers Microsoft is hiring... Or maybe all the new Vista and Office 2007 support folk?

I'm sure Mini-Micro, the anonymous anti-hiring conscience at Microsoft, will have plenty to say about these numbers.

Topics: Data Centers, Banking, Microsoft

About

Mary Jo Foley has covered the tech industry for 30 years for a variety of publications, including ZDNet, eWeek and Baseline. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008). She also is the cohost of the "Windows Weekly" podcast on the TWiT network. Got a tip? Se... Full Bio

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