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"This quarter's record revenue reflects the breadth of our offerings and our continued product momentum," Peter Klein, Microsofts chief financial officer, wrote in a statement released prior to this afternoon's earnings call. "The revenue growth, combined with our ongoing cost discipline, helped us achieve another quarter of margin expansion."
According to Microsoft, revenue increased "mainly due to strong sales of Windows 7 and the 2010 Microsoft Office system," which were released in fiscal year 2010, as well as PC market improvement. Operating income increased reflecting the change in revenue, offset in part by higher operating expenses.
Cost of revenue increased $584 million or 23 percent, the company added. This was said to reflect increased online costs, increased royalty costs, and "charges resulting from the discontinuation of the Kin [link] phone."
Good results for Windows and EDD
Microsoft has five divisions: Windows & Windows Live, Business, Server and Tools, Online Services, and Entertainment and Devices (EDD). The last of these, EDD, is responsible not only for Microsoft's embedded OSes -- Windows Embedded Standard, Windows XP Embedded, Windows CE, and Windows Mobile, for example -- but also for consumer products such as the Xbox 360 gaming console and Zune music player.
Reflecting positive results posted by Intel last week, Microsoft said the PC market grew from 22 to 24 percent during the quarter, and its OEM sales of Windows grew still further (26 percent). With enterprise adoption of Windows 7 accelerating and a "business PC refresh underway," the total number of Windows 7 licenses sold has reached 175 million, the company added.
All this is said to have brought strong growth for Microsoft's Windows & Windows Live division (formerly known as the Client division). As depicted below, division revenue reached $4.55 billion, up from the $4.42 billion reported in the previous quarter. Adjusted to reflect deferred revenue resulting from copies of Windows Vista that were sold with a free Windows 7 upgrade, this represented a 32 percent year-over-year increase, the company says.
Microsoft Windows & Windows Live revenue for Q4 of FY2010
(Click to enlarge)
Source: Microsoft
As for Microsoft's EDD division, this was said to have revenues that declined sequentially -- down from $1.67 billion during Q3 FY2010 to $1.60 billion in Q4 FY2010 -- but were up 27 percent year-over-year. Xbox 360 sales were said to be up 26 percent, and "growing faster than the overall market," the company added.
Interestingly, however, Microsoft gave its largest-ever nod to the "non-gaming" revenue of EDD, including Windows Embedded device platforms. Non-gaming revenue increased by $115 million, or 23 percent, during the quarter, reaching a total of about $615 million.
Looking at the 12-month period ended June 30, 2010, Microsoft said EDD revenue was nearly flat, with decreased revenue from the Xbox 360 and PC games being counterbalanced by the non-gaming portion of the business. For the year, non-gaming revenue increased $35 million (about 1 percent), "primarily reflecting increased sales of Windows Embedded device platforms, offset in part by decreased Zune and Windows Mobile revenue."
During the fourth quarter, the cost of revenue for EDD increased $251 million (38 percent), according to the company. This was partly due to "increased royalty costs resulting from increased Xbox LIVE digital marketplace third-party content sales" and partly due to the Kin debacle, says Microsoft.
Further informationTo see Microsoft's own earnings release, including results for the company divisions not detailed above, plus the PowerPoint presentation for investors from which the above graphs were extracted, see the company's website, here.
Further coverage may be found on the eWEEK.com website, here. A transcript of the earnings call should become available on the Seeking Alpha website, here.
