Microsoft Corp’s CFO attempted to sooth investors’ concern over slow renewals of enterprise agreement volume purchasing contracts yesterday.
John Connors told Wall Street analysts there was no cause for concern over enterprise agreement (EA) following repeated questioning over the reason customers are hesitating to renew their EAs.
Delayed renewals are affecting Microsoft’s server software, comprising SQL Server and Exchange Server, and its information worker division, consisting of Office.
Concern mounted as Connors told analysts, during the company’s first quarter financial results call, that a lot of EA contracts are up for renewal during the current fiscal year. Connors predicted an extraordinarily strong fourth quarter for renewals but slightly lower than expected renewals during the third quarter.
EA is one of Microsoft’s volume purchase programs, which has traditionally seen renewal rates run between 60% and 70%.
Connors wasn’t exactly clear on why customers are hesitating, but in response to an analyst question said some could be holding out for a better price. Customers have a 90-day period at the end of a contract in which they can still renew.
Connors added Microsoft’s sales teams are also making customers buy more software at the end of an EA contract, slowing the process. As we go to renew, we want to attach more server software, developer tools and Client Access Licenses, and that takes a lot more time, Connors said.
Another factor is customers in the mid-size market especially are tending to buy software with their servers and PCs, from OEMs, instead of through volume agreements.
For the three months to September 30, Microsoft reported a 10.9% jump in net income to $2.9 billion on revenue that grew 11% to $9.1 billion, with earnings per diluted share up a cent to $0.27. Annuity-based revenue, derived from programs like EA, as part of Microsoft’s overall revenue mix fell to 23%, down from 27% on the same time last year.