Servers, Xbox Stand Out in Slow Q3'05

Strong sales of server applications and Xbox game consoles were the bright spots in the third quarter of Microsoft’s fiscal year 2005, which ended Mar. 31. However, slow growth in the company’s other businesses meant that total revenue grew only 5% from the previous year, to US$9.62 billion-the lowest rate of year-over-year revenue growth since the June 2000 quarter, in which Microsoft suffered its first major antitrust setback and felt the beginning of the dot-com implosion. Nonetheless, the company expects a pickup in Q4, as more than US$2.5 billion worth of multiyear contracts come up for renewal.

(For an overview of Q3’05 financials and how they compare with previous quarters, see the chart “Microsoft Financials for the Last Five Quarters“.)

SQL, Exchange Drive Growth

Revenues in Q3’05 were significantly lower than the previous quarter, which is normal because of high consumer sales in the December quarter. However, rates of year-over-year revenue growth slowed in most of Microsoft’s seven business units as well, suggesting a broader slowdown may be at work. Nonetheless, Microsoft was able to nearly double its profits from the same quarter last year (from US$1.32 billion to US$2.56 billion) due to much lower legal expenses. (For a chart showing Q3’05 and Q3’04 revenue and profit or loss by business segment, see “Revenue and Profit (Loss) by Business Segment“.)