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Microsoft Posts Record Earnings
sriram_2001 writes "Microsoft has just had a record quarter where their profits have doubled from the previous quarter. Total sales are at $10 billion, exceeding both internal and external expectations. Microsoft has attributed the rise in earnings to increased server sales (where *nix-based systems are supposed to be doing well) and more XBox units being sold. For a company that most Slashdotters would say is on the decline, Microsoft sure has weird financial results!" To put it in perspective, Microsoft's income is about the same as New York State receives in taxes - below California, and well above the other 48 states.
I thought the Gates Borg icon had a larger smile this morning. Now I know why.
Don't blame Durga. I voted for Centauri.
Server Sales 18% up - thats quite a share :-). Especially if you regard how hardware sales of servers developed in the end of last year:
Hewlett-Packard: +21%
Dell: +28%
IBM: +36%
(Gartner quote)
http://www.itfacts.biz/index.php?id=P243
There have to be quite a couple of linux- and other boxes, if Microsoft ist just +18%.
Anybody got more precise infos on actual sales of iron?
btw: Profits are also significantly up because of the cut in personell.
Details on different aspects of server sales: http://www.itfacts.biz/index.php?id=C0_5_1
Microsoft has attributed the rise in earnings to increased server sales (where *nix-based systems are supposed to be doing well)
Maybe it's because more servers (both MS and !MS) have been sold this year so both were profitable...
Trolling using another account since 2005.
1. Profit
But how do we know that this growth isn't just because we happen to be in a fairly prosperous time for the tech-market in general right now? These rates could take a turn for the worse in the next couple years. So this could all just be circumstantial.
What I'd like to see is a comparison of growth rates of major software companies. Even if Microsoft still comes out on top, at least the comparison would be relative to _something_.
the day after MacWorld, Apple reported its best quarter ever.s .html/
http://www.apple.com/pr/library/2005/jan/12result
This isn't another episode of funny accounting is it?
It is of sorts. Microsoft has so much cash in various accounts is is commonly known in the past that not was all accounted for as to make their profits more reasonable. With a 80-90% markup in North American markets does not hurt either.
Y2K was 4-5 years ago, and alot of the sales are upgrades from NT to W2000 or W2003. 1999 was a bubble sales year and after 4-5 years write down many companies will upgrade servers. Sales for this type are Y2K cyclical and will not last.
And if you don't plow the income into R&D to fix issues of security, usability and reliability then it is like milking a cow without feeding it.
Novell had such a bubble near it's end at the top as did Digital and IBM before them. History is just repeating itself.
...that 1.5 billion of the increase in profit is due to a 1.5 billion reduction in R&D. Wonder what long term effect halving the R&D budget will have on future MS technology?
I used to temp for MS from 1998-2000, I was a bus rider and the traffic was so bad from Redmond to Seattle that some employees would cruise the bus stops asking for a third person to qualify for the car pool lane. If you didn't take the HOV lane, it would add 45 to 90 minutes to your commute.
One time I got a ride with someone from accounting. The conversation must have been started about how they posted record profits that day and he was all giddy about it. He went on about how they withhold money back in some financial quarts in order to show off record results in another. I'm sure this has become familiar with many people over the 90s that once or twice a year MS would post record profits. The sole purpose would be to drive up the price of the stock. I laughed and asked him if it were legal, he said that not only was it legal, but very common in the industry. What he was doing wasn't any different from what other companies did during the dot com explosion.
I haven't temped there in a while, im not sure how things are in the labs or meeting rooms. Everyone benefits from a higher stock price, but im thinking this may be to keep their talent from jumping ship. Back in the mid to late 90s, a program manger or developer could be expected to work there for 7 years, then cash in all their stock options and retire at the ripe old age of 30. Its obviously not like that now because the stock price is lower and has been like that for several years. Investors really aren't that worried about the stock price, they are in it for the long term investment. But not the workers! Oh no, they want to work that 7 years and get the hell out of dodge and its the stock options that really keeps a MS employee working there. I've heard it from a few developers that if it wasn't for the stock options, they would quit their jobs in a heartbeat.
The numbers are real alright but they do say something else:
I can't find the actual data of this quarter, but here are the data for the last four quarters. Notice that the quarter ending 12/31/2003 is the one used for comparison by the article.
-quarter ending 12/31/2003:
revenue $10,153,000, net income $1,549,000
-quarter ending 9/30/2004:
revenue $9,189,000, net income $2,528,000.
How can they have a billion less in revenue and a billion more in income?
The answer is also there: they spent $1.4 BILLION *less* in Research and Development.
Microsoft is of course still in a dominant position, and their software still sells like no other piece of software ever did, but the real advancement from last year is a +6% in revenue (which is propably *less* than the overall market growth).
Washington bullets will simply be known as the "Bulle
From MS Versus:
"According to an ABC News 1/22/99 article by Michael Martinez, Microsoft's own internal auditor, a respected 30 year veteran and former partner of Deloitte and Touche, was fired in 1996 after informing management that their earnings manipulations were illegal and violations of the SEC and FASB laws. He was given the option to resign or be fired and later settled for $4 million after suing under the Federal Whistle Blowers Act."
"The single most lucrative product Microsoft sells is its own stock. Microsoft receives almost as much cash inflow from the stock market as it does by selling goods and services... Basically, Microsoft receives cash by issuing employee stock options, after which the company then receives billions of dollars in tax deductions from the IRS for doing so. Add in the warrants it sells on its own stock, and the company made over $5 billion off the stock market [for the] fiscal year end[ing] July 1999, tax-free. For comparison, its after-tax net income was only $7.8 billion. Microsoft may not be much in the programming department, but its accountants are impressive." (Landley, Rob. "Why Microsoft's Stock Options Scare Me." The Motley Fool 17 Feb 2000)
Developers: We can use your help.
In DEC's case, the influx of workstation-class machinery caused a weakening of the mini market. This weakening killed off all but the strongest mini maker (DEC). Customers fleeing from failing makers split themselves between DEC and the new workstation vendors, thus causing a boost in DEC's sales right before the crash of the whole mini market -- DEC peaked amongst the carnage of their market, then crashed spectacularly.
Sun's case was a repeat of the behavior. Sun's market had migrated from workstations to servers from the late 80s through the mid 90s. By the mid 90s, however, we were already seeing a market shift towards PCs acting as servers. As the server vendors' market weakened (still prior to the Internet boom) we saw diminishing workstation/server sales for many companies in that sector (e.g. HP, SGI). Meanwhile Sun's sales skyrocketed, again attributable to a split in the market where some of the people leaving failing vendors went to Sun.
Sun would have had a crash in the 1999 timeframe if it weren't for the internet boom, which dramatically increased demand for large servers. When the boom ended, however, so did Sun's fortunes -- very fast. You can see in Dell's sales where the market went.
Microsoft has been benefitting from the failing of the server vendors, same as Sun. (Though, really, the biggest winner in this is Dell.) If this were a normal hardware-only migration Microsoft would rapidly capture upwards of 80% of he market and be dominant until the next hardware shift. But it's not normal because this is the first transition where the software is decoupled from the hardware.
Microsoft should have won by default, with customers shifting from server-class systems to PCs as customers went with the default option of Windows servers. And, in fact, Microsoft did extremely well for the first several years of the transition when there really wasn't much competition in the PC space.
Linux has thrown a huge wrench in the works. It's maturing very nicely and offers the huge win over Windows in that it's both cheaper for licenses and especially for migration.
If there's any one thing we can count on in this industry it's that the cheapest thing that gets the job done wins (which I've been saying so long now I call it Jim's Law). Until Linux came along the cheapest thing was Windows servers. Now it's not. The market impact of that is going to be phenomenal.
In a typical market transition you can expect more or less equal boosting of the various competitors in the market as people flee dying companies. But in a typical market transition there is not much price difference between the competitors -- usually within 10%, as everyone attempts to maximize the market opportunity.
Linux turns that on its head by offering a scale of prices starting at zero (no support) through prices that are more or less competitive with Microsoft's offerings (full support). That gives Linux a significant market advantage.
I expect we'll see a major market move towards mid-priced systems (some support, not "enterprise class" support, call it the $500 price point). Microsoft is trying hard to push for higher prices in that market just as Linux is depressing them.
If things continue the way they are going I would expect Microsoft to peak in the next one to three years at perhaps 65% of the market (by units) as the migration from server-class systems to PCs-as-servers completes, and then fall over the following five years to about 30% of the market as people migrate to more cost-effective Linux solutions.
But Microsoft won't take this laying down, they'll start reducing prices to match those of the midrange Linux products (more on that in a minute), to whatever degree they can afford. As such I think we're going to see the products come very close to price parity and we'll see Windows stabilize at 40-45% market share with
jim frost
jimf@frostbytes.com