Revenue Surge Propels Strong Q1'08

Strong sales in emerging economies and a profitable quarter for the Xbox business contributed to very strong earnings in the quarter ending Sept 30, 2007 (Q1 of Microsoft’s 2008 fiscal year). From the same quarter last year, revenue grew 27%—the fastest rate in seven years—to US$13.76 billion, beating Microsoft’s estimates by more than US$1 billion, while operating income and net income both came in near record levels.

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

Segment Performance

Four of Microsoft’s five business segments significantly exceeded the company’s revenue predictions issued last quarter. The exception was the Online business, which came in at the low end of expectations.

(For a chart detailing the results of each business segment, see “Revenue and Profit (Loss) by Business Segment“)

Client. Revenue from sales of the Windows desktop OS—Microsoft’s most profitable business—grew 25% over last year’s Q1 to US$4.14 billion, well ahead of Microsoft’s expectations of 15% to 16% growth, and operating income was US$3.37 billion. Microsoft credited the surprise to PC unit sales growth of 15%, instead of the 10% to 12% that Microsoft expected. PC sales were particularly strong—around 20%—in the four largest emerging economies, Brazil, Russia, India, and China (BRIC). Improved piracy protection programs, such as Windows Genuine Advantage, and a higher mix of premium-priced consumer editions also helped Microsoft increase Client revenue from last year. In the earnings conference call, Microsoft also claimed a 27% increase in revenue from multiyear agreements covering Windows client upgrades, suggesting that businesses are intending to deploy Vista.