Q2'04 Record Revenues Offset by One-Time Expense

A strong pickup in PC sales and IT spending enabled Microsoft to post record revenues of US$10.15 billion in the second quarter of fiscal year 2004, which ended Dec. 31, 2003. The record revenues did not translate into record profits, however, as a program to buy back “underwater” employee stock options hit the bottom line, particularly in the Server and Tools business segment. Nonetheless, the strong quarter led the company to raise its guidance for FY’04. Microsoft also acknowledged uncertainty as to whether small and mid-size businesses would continue to participate in annuity licensing programs beyond this fiscal year.

(For an overview of Q2’04 financials and how they compare with previous quarters, see the chart “Microsoft Financials for the Last Five Quarters“.)

Strong Revenue Growth in Core Businesses

A recovery in technology spending—sales of PCs and Intel-based servers surpassed Microsoft’s forecasts in Q2’04, growing 12% and 13%, respectively—and favorable exchange rates enabled Microsoft’s three largest and most profitable business segments to show revenue growth of 20% or greater from the same quarter last year.