Increased competition from open source software coupled with declining PC sales could mean that Microsoft Corp. has a tough fiscal year ahead, the company has warned.
Microsoft used its latest Stock Exchange Commission (SEC) filing to alert Wall Street investors that these threats could combine, leading to lost application and server sales and negatively impacting both revenue and operating margins during 2005.
The company’s warning comes after Microsoft closed fiscal 2004 in July, a year that saw revenue grow 14.4% to $36.8 billion. Microsoft expects revenue during the new year between $38.4 billion and $38.8 billion, whilst also attempting to cut costs by $5 billion.
Microsoft, though, has tempered guidance with publication of its 10k.
According to Microsoft, its share of server units grew modestly during fiscal 2004, while Linux distributions rose significantly faster. Increased interest in Linux and open source reflects what it called significant public announcements of support and adoption of open source software, in both the desktop and server markets.
We continue to watch the evolution of open source software development and distribution, and continue to differentiate our products from competitive products including those based on open source software, the company said.
To the extent open source software products gain increasing market acceptance, sales of our products may decline, which could result in a reduction in our revenue and operating margins.
On PCs, Microsoft called 2004’s PC shipments strong, growing 13% over fiscal 2003, but expects the coming year’s shipments will be in single digits – between seven and nine percent, resulting in client revenue growth between five and seven percent.
PC unit growth was very strong in fiscal 2004, increasing approximately 13% from fiscal 2003. We do not expect similar growth to occur in fiscal 2005, Microsoft said. For fiscal 2005, we believe industry-wide factors such as PC unit growth and the success of non-commercial software could significantly affect our results of operations and financial condition.