Powered by Strong Xbox Demand, Microsoft Profits Soar

July 22, 2011
Office and Bing also contribute to record quarter.
Microsoft said its annual profits soared on record revenues thanks in part to hot demand for its Xbox 360 video-game console gear and online network.

Microsoft reported its net income surged 23% to $23.15 billion on record-high revenues of $69.94 billion in the fiscal year that ended June 30.

The annual results came with word that Microsoft posted profits of $5.87 billion on record revenues of $17.37 billion in the fiscal fourth quarter that ended June 30.

"Throughout fiscal 2011, we delivered to market a strong lineup of products and services which translated into double-digit revenue growth, and operating margin expansion," said Microsoft Chief Financial Officer Peter Klein.

Microsoft Business Division revenue grew 16% for the year, with the Redmond, Wash.-based company selling more than 100 million licenses for the latest version of its Office software.

"We continue to see strong business demand across all our products, from small businesses all the way up to the largest global enterprises," said Microsoft Chief Operating Officer Kevin Turner.

Office Helps Microsoft Hit Paydirt

Businesses recovering from the economic meltdown of two years ago continued to spend money replacing or upgrading computer gear, while consumer spending outside the workplace remained soft.

"Basically, Office put the ball over the goal line again," said Rob Helm, managing vice president of research at private analyst firm Directions on Microsoft.

Microsoft said its online services unit saw revenue climb 15% during the year, primarily driven by gains in income from Internet search.

Bing's share of the U.S. search market had grown to 14.4% by the end of June, according to the company.

Revenue from Microsoft's Entertainment & Devices Division leaped 45% for the year due to "ongoing momentum" of the Xbox 360, Kinect gesture-sensing controllers for the consoles and the Xbox Live network that connects consoles to online games, films and other digital offerings.

Xbox Live membership has reached 35 million, according to Klein.

'Totally Aligned With Yahoo!'

While the business division remains "the bright spot" at the company, sales of Windows operating software and licenses was being hurt by a shift from personal computers to smart mobile devices such as tablets, according to Helm.

"We are not expecting a Microsoft tablet solution to show up for at least a year," the analyst said. "The tablet problem is going to be chewing away throughout fiscal year 2012."

Another challenge facing Microsoft is that demand for personal computers is growing most in emerging markets where prices are lower and software piracy prevalent.

More than half of personal computers shipped in the past year went to emerging markets, according to Microsoft executives who predicted that meant lower average selling prices and higher piracy rates in the coming year.

"The economies doing best are in countries where they are reluctant for pay for software," Helm said.

Microsoft saw companies embracing Office 365, which offers business software as services in the Internet "cloud."

Microsoft said it remains committed to its deal to power Internet search at Yahoo! websites and the companies are working together to "uncover and address gaps and inefficiencies" in the merged technology platform.

"We are totally aligned with Yahoo!," Klein said. "The collaboration is fantastic and we will have this turned around by the end of this calendar year."

The price of Microsoft stock slipped less than a percent to $26.98 per share in trading that followed release of the earnings results.

Copyright Agence France-Presse, 2011

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