The Wall Street Journal
Microsoft Corp. said consumer demand for Windows 7 propelled a 60% increase in profit during the holiday quarter, in another sign of hope for the battered technology sector.
The world's largest software maker's results, which included a 14% rise in sales, were a welcome change after three quarters where sales fell from a year earlier. The turnaround in Microsoft's business was almost entirely due to the October launch of Windows 7, which lured consumers back to stores for copies of the software and new computers running it, especially in markets like Asia and Latin America.
Microsoft executives cautioned they haven't yet seen a return to strong spending by businesses on Windows 7 and other products, though they reiterated earlier expectations of a recovery sometime this year. "This is the best launch of an operating system we've ever had," Peter Klein, chief financial officer, said in an interview.
The Redmond, Wash., company's results looked particularly good in comparison with the holiday quarter of 2008, when spending on technology ground to a halt.
For its second fiscal quarter ended Dec. 31, the company's Windows division saw revenue jump 70% to $6.9 billion. The results included $1.71 billion in deferred revenue from pre-sales of Windows 7 that occurred before it was released.
Sarah Friar, an analyst at Goldman Sachs, said Microsoft's results were "staggering" considering that the company gets less money on average from sales of consumer PCs, where selling prices for consumers are lower than they are in the business market.
Overall, Microsoft said second-quarter profit jumped to $6.66 billion, or 74 cents a share, from $4.17 billion, or 47 cents a share, a year ago. Revenue rose to $19.02 billion from $16.63 billion, despite weakness in its non-Windows businesses.
The strength of its results showed that, for now, one of the main profit engines at Microsoft has maintained its durability in the face of a new wave of threats, including Apple Inc.'s resurgent Macintosh. It also appears Microsoft has been able to rebound from technical shortcomings that hurt the perception of Windows Vista, its last major operating system.
Another potential threat to Windows seems to have abated as well: the inexpensive laptops known as netbooks that generally deliver lower Windows licensing revenue to Microsoft than other computers. Mr. Klein said netbooks have stabilized at about 11% of the PC market and that roughly 90% of them continue to be sold with Windows on them.
Outside its Windows franchise, most of Microsoft's other businesses continued to show weakness. Sales in the division that includes its Office software were flat, while its online services division's revenue declined 5% to $581 million from the prior year, despite the high-profile launch of the Bing search engine. Microsoft's Mr. Klein said he's still confident about the long-term prospects of Microsoft in the search business.
The company has continued to gain a bigger share of Internet searches since it launched Bing last June, rising to 10.7% of U.S. searches in December from 8.3% a year earlier. The company has said its online business could improve further if a proposed deal for Microsoft to handle the search operations for Yahoo Inc. receives regulatory approval in the coming months.
The company could experience a further boost in software sales when it releases a new version of its flagship suite of productivity applications, called Office 2010, due out in June.
The world's largest software maker's results, which included a 14% rise in sales, were a welcome change after three quarters where sales fell from a year earlier. The turnaround in Microsoft's business was almost entirely due to the October launch of Windows 7, which lured consumers back to stores for copies of the software and new computers running it, especially in markets like Asia and Latin America.
Microsoft executives cautioned they haven't yet seen a return to strong spending by businesses on Windows 7 and other products, though they reiterated earlier expectations of a recovery sometime this year. "This is the best launch of an operating system we've ever had," Peter Klein, chief financial officer, said in an interview.
The Redmond, Wash., company's results looked particularly good in comparison with the holiday quarter of 2008, when spending on technology ground to a halt.
For its second fiscal quarter ended Dec. 31, the company's Windows division saw revenue jump 70% to $6.9 billion. The results included $1.71 billion in deferred revenue from pre-sales of Windows 7 that occurred before it was released.
Sarah Friar, an analyst at Goldman Sachs, said Microsoft's results were "staggering" considering that the company gets less money on average from sales of consumer PCs, where selling prices for consumers are lower than they are in the business market.
Overall, Microsoft said second-quarter profit jumped to $6.66 billion, or 74 cents a share, from $4.17 billion, or 47 cents a share, a year ago. Revenue rose to $19.02 billion from $16.63 billion, despite weakness in its non-Windows businesses.
The strength of its results showed that, for now, one of the main profit engines at Microsoft has maintained its durability in the face of a new wave of threats, including Apple Inc.'s resurgent Macintosh. It also appears Microsoft has been able to rebound from technical shortcomings that hurt the perception of Windows Vista, its last major operating system.
Another potential threat to Windows seems to have abated as well: the inexpensive laptops known as netbooks that generally deliver lower Windows licensing revenue to Microsoft than other computers. Mr. Klein said netbooks have stabilized at about 11% of the PC market and that roughly 90% of them continue to be sold with Windows on them.
Outside its Windows franchise, most of Microsoft's other businesses continued to show weakness. Sales in the division that includes its Office software were flat, while its online services division's revenue declined 5% to $581 million from the prior year, despite the high-profile launch of the Bing search engine. Microsoft's Mr. Klein said he's still confident about the long-term prospects of Microsoft in the search business.
The company has continued to gain a bigger share of Internet searches since it launched Bing last June, rising to 10.7% of U.S. searches in December from 8.3% a year earlier. The company has said its online business could improve further if a proposed deal for Microsoft to handle the search operations for Yahoo Inc. receives regulatory approval in the coming months.
The company could experience a further boost in software sales when it releases a new version of its flagship suite of productivity applications, called Office 2010, due out in June.
