Microsoft Booms In Q4, But Investors Still Nonplussed

Microsoft pulled in $16.04 billion in revenue during its fiscal fourth quarter ended June 30, a 22 percent jump from last year's quarter. Earlier this week, Apple reported Q3 revenue of $15.7 billion and profit growth of nearly 78 percent, leading to speculation that it might surpass Microsoft's quarterly revenue.

Microsoft's profit rose 48 percent during the quarter to $4.52 billion (51 cents per share) compared to $3.05 billion (34 cents per share) in last year's Q4. Analysts polled by Thomson Reuters had been anticipating 46 cents per share on revenue of $15.26 billion.

All five of Microsoft's business divisions racked up double digit gains during the quarter, led by the Windows & Windows Live division, which grew 44 percent year-over-year. Microsoft has sold 175 million Windows 7 licenses to date and the OS is now running on around 15 percent of all worldwide PCs, Microsoft CFO Peter Klein said in the call.

More modest revenue gains were seen in Server and Tools (14 percent growth), the Microsoft Business Division (15 percent growth) and Online Services (13 percent growth).

Entertainment & Devices revenue was up 27 percent, but the division saw a 22 percent operating loss due in part to Microsoft killing off its Kin mobile devices. Online Services had an operating loss of 19 percent due to reimbursement and implementation costs from Microsoft's search deal with Yahoo, as well as increased online traffic acquisition and R&D costs.

In a Q&A after the call, Klein was asked to comment on the growth of Windows Azure thus far, but said it's too early for the cloud platform to have had a material impact on business. He did note that 70 percent of Microsoft's BPOS seats sold during the quarter were to new customers, including a 700,000 seat deal with the state of Kentucky.

The recession has put a dent in Microsoft's volume licensing business, but there are signs of a possible rebound on this front. Billings for multi-year agreements with large companies increased during Q4, and Microsoft expects unearned revenue to return to "normal historical patterns" in its fiscal 2011 first quarter, Klein said in the call.

Another promising sign is that enterprise adoption of Windows 7 continues to accelerate, according to Klein. "Customer satisfaction with Windows 7 is incredibly high and businesses are deploying Windows 7 in the enterprise," he said.

For Microsoft's fiscal 2010 year ended June 30, revenue grew 7 percent to a company-record $62.48 billion. Profit was up 29 percent to $18.76 billion and earnings per share grew 30 percent to $2.10. These are lofty figures, but the only division that saw appreciable growth was Windows & Windows Live, which grew 23 percent.

Microsoft, like many IT industry firms, is still clawing its way out of the recession. Despite beating the Street's expectations, Microsoft is still dealing with a headwind of lukewarm investor sentiment. Microsoft shares were down 13 cents at $25.71 in Thursday after hours trading.