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Microsoft Makes Record-Breaking Money But Keeps Losing Big Online

Illustration for article titled Microsoft Makes Record-Breaking Money But Keeps Losing Big Online

The good news for Microsoft: a record 16.2 billion dollars of revenue last quarter! The bad news: that's in spite of continued big losses in their online segment, and being passed by Apple in revenue.

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The bulk of the news, though, was positive for Ballmer and friends: Xbox 360 was the leading console over the summer, Office 2010 is selling fast. More important, though, may be what Microsoft has to look forward to. Specifically, the imminent launch of Windows Phone 7, and the part of the Bing-Yahoo deal where Microsoft actually starts making money.

Worth noting, also, that Microsoft's fallen behind Apple in the revenue race. Although Microsoft's still winning where it counts, posting $5.41 billion in net income to Apple's $4.3 billion.

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Microsoft Reports Record First-Quarter Results

Growth across all business segments drives record first-quarter revenue and earnings per share.

Redmond, Wash. – Oct 28, 2010 – Microsoft Corp. today announced record first-quarter revenue of $16.20 billion for the quarter ended Sept. 30, 2010, a 25% increase from the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $7.12 billion, $5.41 billion and $0.62 per share, which represented increases of 59%, 51% and 55%, respectively, when compared with the prior year period.

Prior year results reflect the deferral of $1.47 billion of revenue, an impact of $0.12 of diluted earnings per share, relating to the Windows 7 Upgrade Option program and sales of Windows 7 to OEMs and retailers before general availability in October 2009. Without the deferral in the prior year, first-quarter growth rates for revenue and operating income were 13% and 20%, and growth in net income and earnings per share were 16% and 19%, respectively.

"This was an exceptional quarter, combining solid enterprise growth and continued strong consumer demand for Office 2010, Windows 7, and Xbox 360 consoles and games," said Peter Klein, chief financial officer at Microsoft. "Our ability to grow revenue while continuing to control costs allowed us to deliver another quarter of year-over-year margin expansion."

During the quarter, Microsoft saw year-over-year growth across all business segments. Among the highlights are these:

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Office 2010 is off to a fast start with revenue growing over 15% in its first full quarter in market.
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Microsoft continues to see a healthy and sustaining business PC refresh cycle.
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Xbox 360 consoles grew 38%, outselling every competing console in the U.S. for each of the past four months.
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For yet another quarter, Bing continued to grow market share, while achieving major milestones in implementing Microsoft's partnership with Yahoo.

"We are seeing improved business demand and adoption. Our enterprise agreement rates were strong, reflecting business commitment to Windows 7, Office 2010, and our server and database products," said Kevin Turner, chief operating officer at Microsoft. "Customer demand and excitement for our cloud and commercial online services continue to grow as demonstrated by major new customer wins this quarter for Windows Azure and by the significant customer interest in our recently announced Office 365 service."

Business Outlook

Microsoft reaffirms operating expense guidance of $26.9 billion to $27.3 billion for the full year ending June 30, 2011.

Webcast Details

Peter Klein, chief financial officer, Frank Brod, chief accounting officer, and Bill Koefoed, general manager of Investor Relations, will host a conference call and webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today to discuss details of the company's performance for the quarter and certain forward-looking information. The session may be accessed at http://www.microsoft.com/investor. The webcast will be available for replay through the close of business on Oct. 28, 2011.

Adjusted Financial Results and Non-GAAP Measures

Information has been provided to aid readers of the financial statements in further understanding the company's financial performance, and the impact that certain items and events had on the financial results may not be indicative of trends affecting the company's business. For comparability of reporting, management considers this information in conjunction with GAAP amounts in evaluating business performance.

In addition, we have recast certain prior period amounts within our Form 10-Q that conforms to the way we internally managed and monitored segment performance during the current fiscal year.

These non-GAAP financial measures provided should not be considered as a substitute for, or superior to, the measures of financial performance prepared in accordance with GAAP. A reconciliation of adjusted financial results and a reconciliation between reported and recast segment results are available in our supplementary earnings slide deck at http://www.microsoft.com/investor

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DISCUSSION

kaisermachead
kaisermachead

bing isn't shitty, but bing is not at all superior in any way that matters over Google either, and that counts for everything. I've yet to get search hits on bing that directed me closer to where I wanted to go with fewer parameter edits than I would with Google, the email service affiliated with it is no better, and all in all, what bing has going for it, which really doesn't help much at all, is that it has a really nice interface, particularly for images as I mentioned to another commenter below.

The only thing that could drive people away from Google and into the loving bosom of bing is if Google makes a huge mistep with its site and core services, but that hasn't happened yet, and from the looks of it, may not happen for a while either.