New Businesses Shine in Q2'05 Earnings

Growth in server hardware shipments and strength in Microsoft’s emerging businesses helped the company post record profits for the third consecutive quarter. In the second quarter of fiscal year 2005, which ended Dec. 31, 2004, Microsoft earned US$3.46 billion on US$10.82 billion in revenues, driven by surprisingly strong sales of SQL Server and by Halo 2, an Xbox title that helped the Home and Entertainment business segment post its first profitable quarter. Although growth in core businesses-Windows and Office-is slowing, Microsoft raised its fiscal year guidance largely on the basis of Q2’s results.

(For an overview of Q2’05 financials and how they compare with previous quarters, see “Microsoft Financials for the Last Five Quarters“.)

SQL Server Surprises, Xbox Turns Corner

All seven businesses showed increased profitability (or reduced losses) in Q2’05 compared with a year ago. In some cases, however, this was not because of an increase in revenue, but rather because of a major one-time expense in Q2’04 as Microsoft bought back some employees’ “underwater” stock options. (For a chart showing Q2’05 and Q2’04 revenue and profit or loss by business segment, see “Revenue and Profit (Loss) by Business Segment“.)