Microsoft Corp’s first fiscal quarter was driven by its core businesses and the growing popularity of its mobile platform, allowing the company to deliver results in line with expectations, despite the Xbox and MSN dragging growth.
Revenue for the three months to September 30 grew 6% to $9.7bn, the low end of predictions, and operating income was up 9% to $4.4bn, when the effect of the $361m RealNetworks antitrust settlement was factored out.
The company again hitched a ride on the growing PC market to grow its Client business unit, essentially Windows XP, by 7% to $3.19bn.
Growth was braked somewhat in this unit by a shift in the sales mix in favor of high-volume PC maker OEMs, which get better discounts, and because more people were buying less-expensive versions of Windows.
The Server & Tools business was up 13% to $2.53bn, driven by double-digit Windows growth and 15% growth in SQL Server revenue. This, as CFO Chris Liddell noted, was perhaps impressive given the company is so close to launching SQL Server 2005.
Information Worker, the Microsoft unit that sells Office and related products came in at the high end of expectations with 4% revenue growth, due mainly to particularly strong back-to-school sales, chief accounting officer Scott Di Valerio said.
Our three largest businesses grew revenues by a combined 8%, representing over $600m in absolutely revenue growth, he added, in a conference call with analysts and investors.
Those three cash cows aside, Microsoft’s business was more mixed during the quarter, with solid growth in its enterprise software and mobile businesses, and a poor showing from its entertainment and online properties.
Business Solutions grew 16% to $181m, the company said, while Mobile & Embedded Devices grew 51% to $74m, driven by 57% growth in embedded sales and 41% growth in sales of Windows Mobile.
The MSN business, arguably the area where Microsoft has to fight hardest to gain the same kind of dominance it has in operating systems and office productivity, grew just 1% in the quarter, as Microsoft struggles to mimic Google’s success.
We were pleased with our growth in display advertising revenue, which was largely in-line with market growth for this category. However, our search advert revenue has not been as strong as we would like, Di Valerio said.
MSN was hit by an expected 30% decline in access revenues, as more users ditch dialup for broadband. Ad revenue was up 20%, mainly because of conventional display ads minimizing the impact of MSN’s struggle to monetize search.
Our market share remains broadly where it was in the last few quarters, Liddell said of the web search market. It’s a monetization issue, and that is something we’re going to have to reverse in the future.
With the launch of the Xbox 360 games console rapidly approaching, Microsoft’s Home & Entertainment category took a 17% decline in revenues to $525m, as customers hold out for the much-anticipated second Xbox.
Liddell said he expects the company to sell 4.5 million to 5.5 million Xboxes before the end of June, when Microsoft’s fiscal year ends.