Legal Expenses Cut Into Strong Q3'04

Strong revenue growth across six of Microsoft’s business segments and a significant gain on investments were tempered by more than US$2.5 billion in legal expenses in the third quarter of fiscal year 2004, which ended Mar. 31, 2004. As a consequence, profits were the lowest they’ve been in eight quarters, at US$1.31 billion. Microsoft Chief Financial Officer John Connors emphasized that corporate IT spending seems to have recovered, but he was cautious about FY’05, citing the end of the unearned revenue carryover from a licensing transition in mid-2002 and the game console life cycle, among other factors.

(For an overview of Q3’04 financials and how they compare with previous quarters, see the chart “Microsoft Financials for the Last Five Quarters“.)

Revenue Growth Driven by IT Recovery

Microsoft booked US$9.18 billion in revenue in Q3’04, which is 17% higher than the same quarter last year. Although this is lower than the US$10.15 in revenues collected during the previous quarter, this pattern is normal because Q2 includes the holiday season, which boosts consumer spending.