Unearned Revenue, Windows Strong in Mixed Q4'08

Unearned revenue, which reflects sales of multiyear license agreements, and revenue from the Windows desktop OS were both considerably stronger than expected in the quarter ending June 30, 2008 (the fourth quarter of Microsoft’s fiscal year 2008), largely due to strong demand from business customers. These highlights were tempered by US$500 million in unexpected expenses, split between higher costs of goods and operational expenses. Consequently, while quarterly revenues came in at the high end of expectations at US$15.84 billion, operating income was a bit short at US$5.68 billion.

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

Core Businesses Perform Well

Microsoft’s core businesses, including sales of Windows on new PCs and business and infrastructure software to larger organizations, were strong in Q4’08, with particular strength in multiyear license agreements. However, the Entertainment and Devices division slipped back into the red for the quarter (although not the entire fiscal year) and the Online group fell well shy of revenue expectations while posting a record quarterly loss.