Blog Post

Microsoft Posts Strong Q4 Earnings While Windows Division Was Flat

Microsoft (NSDQ: MSFT) topped analyst estimates for both revenue and profit during its fourth fiscal quarter, perhaps calming fears that a PC market slowdown had taken its toll on the PC software giant. But revenue from its Windows division actually fell slightly amid tepid PC industry growth that was not offset by a strong response to its Windows Phone 7 software.

The overall numbers were good: revenue of $17.37 billion for the quarter topped analyst estimates of $17.25 billion as talled by *Yahoo* Finance, and represented an 8 percent gain over the same period last year. And net income was $5.87 billion, or $0.69 per share, well ahead of expectations for $0.58 a share in earnings and a solid 30 percent increase over the prior year’s fourth quarter. For its full fiscal year, Microsoft recorded $69.94 billion in revenue and $23.15 billion in net income, increases of 12 percent and 23 percent compared to the prior year.

But despite the strong performance of Windows 7, Microsoft’s Windows and Windows Live division posted a slight decline in revenue and profits. The overall PC industry is only growing at about a 2 percent clip these days, and Microsoft clearly has yet to make the transition toward mobile sources of income the way that Apple successfully demonstrated with its earnings results earlier in the week. Netbook sales fell 41 percent, Microsoft said, pretty much putting a nail in that coffin.

Microsoft’s Entertainment and Devices division probably had the best quarter, with revenue growth of 30 percent and a swing to a slight operating profit, compared to an operating loss this time last year. Microsoft attributed that unit’s performance to strong sales of its Kinect and Xbox gaming devices, but didn’t say anything about the progress of Windows Phone 7, which is overseen by that division. The Business division also continued its strong performance in recent years thanks mostly to the sale of Office 2010.

It’s still not that rosy on the Internet for Microsoft, however. Its Online Services division did manage a 15 percent bump in revenue, but its operating loss widened to $788 million for the quarter. Microsoft lost $2.5 billion on the Internet during its fiscal year, slightly more than the year before.

One of Microsoft more interesting gambits over the past year has been its aggressive mobile patent licensing activity. The company did not disclose how much money it has earned from licensing deals with the likes of HTC and other smaller vendors using Google’s Android mobile operating system, which Microsoft CFO Peter Klein said “infringes some of our patents” on a conference call following its earnings release. Some estimates put the amount of money Microsoft has earned from mobile patent licensing as higher than the money it has earned from Windows Phone 7, but Klein declined to provide financial analysts with a way to understand how large that number might be. Neither did Microsoft disclose its stake in the group that won the Nortel patent auction, although that detail could arrive later when it files its quarterly report with the Securities and Exchange Commission.