Microsoft announced second quarter earnings yesterday after the bell. For the quarter, revenues of $11.84 billion, a 9% increase over the same period of the prior year, marking the highest quarterly revenue in the company’s history. Net income for the quarter was $3.65 billion.
The quarter kicked off the broadest multi-year product cycle in the company’s history with launches of SQL Server 2005, Xbox 360 and Dynamics CRM 3.0.
Server & Tools posted its 14th consecutive quarter of double digit revenue growth with SQL Server leading the way with over 20% growth. The phenomenal success of Xbox 360 ushered in the high definition era and drove Home & Entertainment revenue growth of 13%.
And each of the Microsoft Business Solutions and Mobile and Embedded business groups generated operating profit for their first time!
The outlook for the full fiscal year remains very positive. Guidance from the company resulted in "street" expectations of reveunes of $44B, operating income of $18B, and EPS of $1.30.
During the quarter, Microsoft executed $7.7 billion of share buybacks. This is in effect a dividend to existing stockholders, by reducing the number of shares outstanding, the income per share rises. Microsoft is still sitting on $34.7B in cash even after the share buy backs and dividends. And, cash is growing at about $1B per month.
Microsoft Monitor, a blog from Jupiter Research has the results and some analysis. Here is a breakdown by business uit.
Windows Client software revenue was $3.5 billion and operating income $2.6 billion for the second quarter, up 8 percent, compared to $3.2 billion and $2.5 billion a year earlier. Server and Tools revenue grew 14 percent to $2.907 billion compared to $2.5 billion a year earlier, with operating income of $1.1 billion, compared to $947 million the same quarter of fiscal 2005. Information Worker revenue increased 5 percent to $3 billion from $2.8 billion from a year earlier. Operating income was $2.1 billion compared to $2.065 billion. Microsoft Business Solutions posted a $10 million profit for the quarter on revenue of $242 million, compared to $207 million a year earlier. Revenue rose 17 percent. In the year-ago quarter, MBS posted a loss of $17 million. MSN revenue dipped 2 percent, to $593 million compared from $606 million a year earlier. Operating income plunged 55 percent to $58 million compared from 130 million a year earlier. Advertising revenue grew 20 percent, or sequentially flat and slightly down year over year. Advertising revenue was $40 million for the fiscal second quarter. Sequential comparison: Revenue of $564 million and operating income of $83 million. Microsoft attributed income declines in part to the transition from Yahoo! Services to MSN adCenter. Mobile and Embedded Devices revenue rose 40 percent to $101 million with an operational profit of $20 million, compared to $72 million and a loss of $12 million a year earlier. Sequentially, revenue was $74 million in the fourth quarter, with operating loss of $2 million. Microsoft's third-quarter Mobile and Embedded projection is for growth of 35 percent. Home and Entertainment revenue rose to $1.56 billion from $1.34 billion a year earlier, with an operational loss of $293 million compared to a $55 million operational profit year over year. Sequential comparison: Revenue reached $525 million in the fourth quarter, with an operational loss of $141 million. Microsoft's third-quarter Home and Entertainment projection is for growth of 80 percent to 100 percent.
Impressive growth this quarter. But taken against a $40B annualized run rate it is only 10% growth. Still good solid growth. How will the stock market value this growth and outlook for the rest of the year? The stock is up in early trading. There is a long way to go.
The big news for me was the massive share buy back. This plan was announced last year as part of the one time dividend, and increased quarterly dividend actions. Microsoft is on track to increase revenues another $4B dollars this year for the 4th year in a row. This is the equivalent of growing a Yahoo or Google every year. See my earlier post "Growing a Google every year...for 4 years in a row" for more insight into the numbers and growth trends.
Just for perspective here is a breakdown of the FY05 (fiscal year ended June 30th 2005) rsults by business unit.