Microsoft [MSFT] today announced their fiscal 1Q 2011 earnings [3Q 2010 calendar] for the period ending September 30th, 2010. Their earnings reflected similar earnings of other large cap companies in the technology sector, most notably Intel [INTC] and Apple [AAPL]. Both of those companies reported record revenue and had overall impressive earnings figures similar to Microsoft?s except for the fact the Microsoft did not have their best revenue ever.
Microsoft reported revenue of $16.2B which is a 22% increase over the same quarter last year and a 1% increase over the previous quarter [fiscal 4Q 2010]. Microsoft had an operating income of $7.12B and a net income of $5.41B resulting in an EPS of $0.62. These figures represented increases of 59%, 51%, and 55% respectively over the previous year. When looking at those in the previous quarter, we see increases of 18%, 17% and 18% respectively. These increases indicate that even though Microsoft may have not significantly increased their revenue across the board, they still have managed to improve their margins significantly.
These increases can be attributed to the fact that Microsoft saw strong sales in many of their business divisions. One of those divisions grew thanks to the success of their newly released Office 2010 product offering which saw revenue growing 15% in its first full quarter on the market. And even though some manufacturers saw demand drop in Europe and Asia through the quarter, Microsoft continued to see a healthy PC refresh cycle which meant new licenses of Windows and Office. Also, the company rode the new wave of small and medium businesses upgrading their notebooks and PCs with SSD technology and switching to a new OS without purchasing the whole machine.
One of Microsoft?s biggest strengths during the quarter was the Xbox division that saw consoles grow 38%, outselling all of their competition, including the Nintendo Wii. This is thanks to the Xbox 360 slim and the release of key exclusive titles such as Halo Reach directly following it. Console and game sales continue to be a big part of Microsoft?s business and we only expect those segments to grow as Microsoft debuts Kinect on November 4th. In addition to that, Microsoft?s Bing search engine [or decision engine as they like to call it] gained market share while continuing their partnership with Yahoo. All of this, was of course further held up by strong sales of Microsoft?s Windows 7 operating system which has already shipped 240M copies since its launch a year ago. Furthermore, Microsoft saw strong enterprise sales as a result of the new product offerings and those agreements will likely drag on for a few quarters.
The one key thing left out of the earnings report was their mobile devices business which includes the infamous Windows Mobile division. Microsoft has already failed once with their Kin line of phones for Verizon and nowhere mentioned it in their earnings report. Microsoft specifically stated that they saw growth across all business segments which indicates that they were able to cover any losses that they might have endured as a result of the failed Kin line of products. The reason for mentioning this is because Microsoft plans to launch a new mobile operating system under the new name of Windows Phone 7. Windows Phone 7 is a successor to Windows Mobile 6.5 and is a complete departure from the old way that Microsoft used to do mobile operating systems. As such, there is a good chance that Microsoft may rise from the ashes with fresh feathers and be ready to do battle with the likes of Google and Apple. Windows Phone 7 is slated to be released on November 8th, only a few days after the release of Kinect. Only time will tell how successful Windows Phone 7 will be and we look forward to reviewing a few devices based on it.
Based on Microsoft?s performance in the last quarter and the hype around the new products that they are expected to release, there is a good chance that Microsoft may see yet another impeccable quarter. If PC demand continues to grow into the holiday season, which is likely, Microsoft?s 2Q 2011 [4Q 2010 calendar] could possibly be one of its best quarters the company has ever seen.