Strong Revenue Growth and Earnings in Q1'11

A continued wave of PC replacements and strong sales of long-term contracts helped Microsoft book US$16.20 billion in revenue in the first quarter (ended Sept. 30, 2010) of its 2011 fiscal year, a 25% increase from last year’s first quarter. Net income came in at US$5.41 billion, up 51% from last year.

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

Payoff from PC Growth, Multiyear Agreements

Microsoft’s most profitable products continue to be Windows and Office; the divisions for those products both saw strong growth thanks to improving PC sales and important product launches just before the start of the quarter. For the rest of the fiscal year, Microsoft continued to offer only rough estimates but raised some of those estimates from those of the previous quarter.

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

Windows and Windows Live. Microsoft’s most profitable segment, whose primary product is the Windows client OS, increased revenue 66% from last year to US$4.79 billion, with operating income of US$3.32 billion. However, last year’s revenue was artificially lowered by a deferral of US$1.47 billion to future quarters to account for a program that offered free upgrades to Windows 7 for customers who purchased Windows Vista during that quarter. Not including the deferral, revenue rose 10% from last year, with OEM revenue up 11%. Those figures are in line with the 9% to 11% growth in PC unit shipments that Microsoft estimates for the quarter. The company said that it saw no material shift from low-end PCs to tablets such as Apple’s iPad. (Apple reported in its Oct. 2010 annual report that iPad unit sales to date were 7.5 million and net sales of iPad and related products and services were US$5.0 billion during 2010.)