Microsoft Q4 2011 by the numbers: $17.37B revenue, $5.87B profit, 69 cents EPS

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Microsoft closed its fiscal year on a high note, despite globally slow PC sales that weighed down Windows division sales. The Redmond, Wash.-based company announced fourth quarterly and yearly results after the market closed today.

For fiscal 2011 fourth quarter, ended June 30, Microsoft's revenue rose 8 percent to $17.37 billion, year over year. Operating income: $6.17 billion, or 4 percent increase. Net income rose 30 percent to $5.87 billion, or 69 cents a share. Earnings per share rose by 35 percent year over year.

Average consensus was $17.25 billion revenue and 58 cents earnings per share, for the quarter. Revenue estimates ranged from $16.7 billion to $18.25 billion, with estimated year-over-year growth of 7.5 percent. So Microsoft topped the Street.

For fiscal 2011, ended June 30, Microsoft's revenue rose 13 percent to $69.94 billion, year over year. Operating income: $27.16 billion, or 13 percent increase. Net income rose 23 percent to $23.15 billion, or $2.69 a share. Earnings per share rose by 28 percent year over year.

Average consensus was $69.73 billion revenue and $2.58 earnings per share, for the year. Revenue estimates ranged from $68.68 billion to $70.82 billion, with estimated year-over-year growth of 11.6 percent.

"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" Peter Klein, Microsoft CFO, says in a statement "Our platform and cloud investments position us for long-term growth".

For the third quarter in a row PC shipments hung like a shadow over Microsoft results. A week ago, Gartner and IDC reported weaker-than-expected demand during second calendar quarter, which coincides with Microsoft's fourth fiscal quarter. The overall global PC market grew a tepid 2.3 percent year over year, according to Gartner, down from its earlier 6.7-percent growth projection. IDC put growth at 2.6 percent, slightly off its 2.9-percent estimate. By comparison, US PC shipments were disastrous, falling 5.6 percent year over year, according to Gartner, and declining 4.2 percent by IDC's reckoning.

Q4 2011 Revenue by Division

  • Windows & Windows Live: $4.74 billion, down 1 percent from $4.781 billion a year earlier.
  • Server & Tools: $4.643 billion, up 12 percent from $4.149  billion a year earlier.
  • Business: $5.777 billion, up 7 percent from $5.375 billion a year earlier.
  • Online Services Business: $662 million, up 17 percent from $568 million a year earlier.
  • Entertainment & Devices: $1.485 billion, up 30 percent from $1.144 billion a year earlier.

"After strong growth in shipments of consumer PCs for four years, driven by strong demand for mini-notebooks and low-priced consumer notebooks, the market is shifting to modest, but steady growth", says Mikako Kitagawa, Gartner principal analyst in a statement. "The slow overall growth indicates that the PC market is still in a period of adjustment, which began in the second half of 2010".

Slow PC shipments sapped the Windows & Windows Live division yet again, with revenue down 1 percent during the quarter and down by 2 percent for the year. The bright spot: Collapsing netbook sales means Microsoft makes more profit for every copy of Windows sold.

While Windows & Windows Live revenues dipped, two other divisions -- Business and Server and Tools -- were star performers. Microsoft Business Division revenues rose 7 percent for the quarter and 16 percent for the year. Server and Tools: 12 percent for the quarter; 11 percent for the year.

Q4 2011 Income by Division

  • Windows & Windows Live: $2.943 billion, down 4 percent from $3.066 billion a year earlier.
  • Server & Tools: $1.774 billion, up 14 percent from $1.560 billion a year earlier.
  • Business: $3.618 billion, up 12 percent from $3.219 billion a year earlier.
  • Online Services Business: Loss of $728 million, up 6 percent from $688 million loss a year earlier.
  • Entertainment & Devices: $32 million, up from $172 million loss a year earlier.

Microsoft ended fiscal 2011 with $17.1 billion in unearned revenue, mostly derived from annuity contractual licensing.

Breakdown by Division

Microsoft reports revenue and earnings results for five divisons: Windows & Windows Live, Server & Tools, Business, Online Services and Entertainment & Devices.

Windows & Windows Live. Weaker than-expected PC demand hurt the division during fiscal fourth quarter, with revenue falling 1 percent year over year. Profits declined, too, by 4 percent. While Microsoft reported business PC sales up 8 percent year over year, consumer sales fell 2 percent. Netbook sales plummeted 41 percent, which is mixed blessing. According to analysts, many potential netbook buyers are choosing tablets, with major benefit going to Apple -- that's the bad. The good: Netbooks generally ship with lower-margin Windows versions, such as Starter Edition. The shift in mix to "Premium" Windows versions is better for Microsoft.

For the year, Windows sales to businesses grew by 11 percent compared to fiscal 2010, but fell 1 percent to consumers. For the year, netbook sales declined by 32 percent, precipitating sluggish consumer sales. Microsoft estimates the global PC sales grew between 2 percent and 4 percent during fiscal 2011.

Fiscal 2011 Revenue by Division

  • Windows & Windows Live: $19.024 billion, down 2 percent from $19.494 billion a year earlier.
  • Server & Tools: $17.096 billion, up 11 percent from $15.378  billion a year earlier.
  • Business: $22.186 billion, up 16 percent from $19.076 billion a year earlier.
  • Online Services Business: $2.528 billion, up 15 percent from $2.201 billion a year earlier.
  • Entertainment & Devices: $8.913 billion, up 45 percent from $6.168 billion a year earlier.

It should be noted that Microsoft is successfully shifting the mix of Windows sold through annuity contracts. The longstanding number is 80 percent through OEMs. But it's now 75 percent. The change likely reflects Windows 7 Enterprise being only available through Software Assurance.

Windows 7 enterprise deployments are up 50 percent since March, Klein said during today's Microsoft earnings conference call. Microsoft has sold more than 400 Windows 7 licenses.

Microsoft estimated that 40 million PCs were sold to emerging markets during fiscal Q4, representing half of all global PC sales.

Server & Tools. Revenue rose about 12 percent year over year and income by operating income by 14 percent. The division is insulated against economic maladies, because about 50 percent of revenues come from contractual volume-licensing agreements.

"Product revenue increased $382 million or 11 percent, driven primarily by growth in Windows Server, SQL Server, and Enterprise Client Access License ("CAL") Suites, reflecting continued adoption of Windows platform applications", according to Microsoft financial statements.

Fiscal 2011 Income by Division

  • Windows & Windows Live: $12.281 billion, down 6 percent from $13.034 billion a year earlier.
  • Server & Tools: $6.608 billion, up 19 percent from $5.539 billion a year earlier.
  • Business: $14.124 billion, up 23 percent from $11.504 billion a year earlier.
  • Online Services Business: Loss of $2.557 billion, up 9 percent from $2.337 billion loss a year earlier.
  • Entertainment & Devices: $1.324 billion, up 114 percent from $618 million loss a year earlier.

Business. The division was the quarter's big overall performer (again), with revenue up 7 percent year over year and revenue up 12 percent. Revenue topped a stunning $5.7 billion. Business Division revenue climbed 12 percent, or by $494 million. However, consumer sales fell 8 percent, or by $93 million. The same PC market malaise affecting consumer Windows also sapped consumer Office. For the year, the division delivered stunning $14.124 billion operating income.

Microsoft offered some early figures on Office 365, its hosted productivity suite, which launched during the quarter:

  • 50,000 trials during first two weeks
  • 20 percent of Fortune 500 companies have started to adopt
  • 80 percent of small businesses using service are new to Lync and SharePoint

Online Services Business. Search and display ads drove up online advertising revenue by 17 percent -- $100 million to $597 million. Despite revenue gains, the division's losses increased from fiscal Q4 2010.

For the year, "online advertising revenue grew $358 million or 19 percent to $2.3 billion, reflecting continued growth in search and display advertising revenue", according to Microsoft financial statements.

Entertainment & Devices.The division's revenue increased a healthy 30 percent year over year. Microsoft shipped 1.7 million Xboxes during the quarter days. Xbox console sales rose 79 percent -- that's 2.7 million units. "Xbox 360 platform revenue grew $293 million or 29%, led by higher Xbox Live revenue and increased volumes of Xbox 360 consoles sold," according to Microsoft financial statements.

For the year, Xbox revenues rose by 48 percent, to $2.7 billion.

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