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Microsoft Rides Windows 7 Success to Record for Fourth-Quarter Revenue

Microsoft Corp., the world’s largest software maker, posted record fourth-quarter revenue after the most successful debut of its flagship operating system.

Sales gained 22 percent, the biggest quarterly increase in more than two years, to $16 billion, the company said yesterday. Net income topped analysts’ predictions, as did revenue for the division that sells Windows.

Expectations for Microsoft’s results ran high after quarterly reports this month from Intel Corp. and Apple Inc. blew away analysts’ projections. Still, sales at Microsoft’s top three businesses exceeded estimates. The company also said it has sold 175 million copies of Windows 7 since the program’s October release, the fastest pace for its main operating system.

“It was a big beat,” said Sandeep Aggarwal, an analyst at Caris & Co. in San Francisco who recommends buying the stock. “Street expectations have only gone up in the last two, three weeks.”

Revenue in the Windows unit rose 44 percent to $4.55 billion, topping the $4.3 billion projection of Brent Thill, an analyst at UBS AG in San Francisco. Business division sales, made up mostly of Office software, were $5.25 billion, above his $5.05 billion estimate. Microsoft released a new version of Office during the quarter.

Server software sales of $4.01 billion topped Thill’s $3.85 billion estimate.

Microsoft was little changed in trading after the report. It gained 72 cents, or 2.9 percent, to $25.84 yesterday on the Nasdaq Stock Market. The stock has lost 15 percent this year.

Falling Behind?

Brendan Barnicle, an analyst at Pacific Crest Securities in Portland, Oregon, said he expected the shares to rise on the results. The stock may be held back on investor concern that Microsoft is falling behind in areas like mobile-phones and tablet computers. He said his clients are less focused on results from Windows and Office.

“All I can conclude is that shareholders are just not interested in paying for Windows and Office earnings,” he said. “If the stock is not going to move on this, what’s it going to take to make it move?”

Fourth-quarter net income climbed 48 percent to $4.52 billion, or 51 cents a share, exceeding the 46-cent average of estimates compiled by Bloomberg. Analysts had predicted Microsoft would have total sales of $15.3 billion in the period, which ended June 30.

Apple, which competes with Microsoft in operating systems for computers, tablets and mobile phones, reported quarterly sales this week of $15.7 billion, topping estimates. Intel, the world’s biggest chipmaker, posted record second-quarter sales last week and said corporate spending is strengthening.

Multiyear Contracts

Microsoft’s fourth-quarter unearned revenue, a measure of multiyear contracts, was $14.8 billion, above the $14.7 billion estimate of Heather Bellini, an analyst at ISI Group in New York.

Signs of demand by businesses for bigger purchases improved in the quarter. Renewal rates of multiyear enterprise agreements reached the highest for the year, returning to Microsoft’s historical average of 66 percent to 75 percent, Chief Financial Officer Peter Klein said in an interview. The company doesn’t provide a more specific figure. Billings, a measure of future revenue, grew 27 percent, he said.

Revenue from agreements that have been signed but for which customers haven’t yet been billed rose to about $15 billion, Microsoft said. That’s from about $13.5 billion at the end of the third quarter.

Mobile Competition

Shareholders may remain unimpressed by Microsoft’s successes, with the company facing accelerating competition in mobile and tablet devices from Apple and Google Inc., Barnicle said.

Steve Ballmer, Microsoft’s chief executive officer, said in June that the company “missed a whole cycle” in mobile-phone software, underscoring the company’s challenges from rivals.

Sales in the Online Services unit fell short of Thill’s prediction. Still, the Bing Internet search engine gained a point of U.S. market share in the quarter, rising to 12.7 percent, according to ComScore Inc. in Reston, Virginia. Google had 62.6 percent, followed by 18.9 percent for Yahoo! Inc., which is switching over to using Bing’s technology.

“All these threats may not be anywhere near as big as what they are perceived to be,” Barnicle said. “But it’s perception that moves the stock.”