Deferrals Mask Strong Quarter

A holiday rush on Xbox consoles and continued strong server sales pushed Microsoft revenues to US$12.54 billion for the quarter ended Dec. 31, 2006, while net income declined to US$2.63 billion compared with US$3.65 billion in the corresponding quarter of the previous fiscal year. The company’s desktop software revenue and profit declined due to delays recognizing revenue for its latest releases, Windows Vista and Office 2007, but PC sales growth and strong corporate interest in Office have caused Microsoft to raise revenue estimates for the rest of the fiscal year.

(For a chart detailing Microsoft’s recent financial performance, see “Microsoft Financials for the Last Five Quarters“.)

Deferrals Slow Biggest Segments

Microsoft’s Windows and Office businesses appeared weak due to deferral of revenues from the company’s fiscal second quarter into the third quarter, which ends March 31, 2006. Meanwhile, sales of the money-losing Xbox console and high spending in the race against Google continue to drag on the company’s overall earnings, but both showed some signs of turning a corner on profitability.