This summary is based on the first quarter fiscal 2009 earnings call conducted by Microsoft Corp. (MSFT) on October 23, 2008.
Management:
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CFO: Chris Liddell
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General Manager, IR: Bill Koefoed
Key Investors Issues
- Revenue grew 9% to $15.1 billion, from $13.8 billion in 2007.
- Earnings were $4.4 billion or 48 cents a share, up 7% from $4.3 billion or 46 cents a share in the prior year.
- The firm also increased the dividend by 18% and announced a new $40 billion share repurchase authorization.
First Quarter Highlights
Revenue grew over 9% to $15.1 billion, from $13.8 billion in the prior year with the annuity sales mix which is 25% of billed revenue growing over three percentage points year-over-year.
- Enterprise agreement renewal rates were in line with historical trends.
- The remainder of the product was approximately 35% from OEMs, about 20% from license only sales and the balance from the other businesses.
- Unearned revenue grew over 16% to $13.5 billion, but was down sequentially from the prior quarter in line with normal seasonal patterns.
Revenue from Microsoft Business Division and Server and Tools segments grew a combined $1.3 billion, or 19%, driven by healthy demand from enterprise customers.
- Client revenue grew 2% with growth impacted by the expected reduction of fourth quarter channel inventory and a shift of the sales mix to lower price netbooks and the units sold in emerging markets.
- Consumer demand for the Xbox 360 resulted in the outperformance by Entertainment and Devices division.
- The Online Services Business grew revenue of 15% in a challenging online advertising environment as the firm refreshed the product lineup with several important releases.
- The firm also increased the dividend by 18% and announced a new $40 billion share repurchase authorization.
Total bookings for the company increased 6% on top of over 30% total bookings growth reported in the prior year.
- Changes in foreign exchange rates added about three percentage points to revenue growth.
- Cost of goods sold was $2.8 billion and operating expenses were $6.2 billion, with margins declining by half a percentage point to 18.9% driven by lower console manufacturing, warranty and component costs, as well as a mix shift towards the lower cost Xbox 360 arcade console.
Operating income was $6 billion; up 3% from the year-ago period and other income and expenses was an $8 million loss as dividend was offset by asset revaluations.
- Earnings were $4.4 billion or 48 cents a share, up 7% from $4.3 billion or 46 cents a share in the prior year on revenue growth.
- The firm repurchased 223 million shares or almost $6 billion of company stock and paid out a billion dollars in dividends to shareholders.
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Windows clients revenue grew 2% to $4.2 billion, missing guidance by four percentage points on PC unit growth rate of between 10% and 12%.
- From a geographic perspective, Microsoft estimate mature market traditional PC growth of flat to low single-digits with netbooks adding about eight points to the growth and in emerging markets it continues to see strong double-digit growth across all segments.
Windows OEM license units increased by 8%, a few points lower than the overall hardware market with the shortfall between OEM unit growth and hardware growth driven by inventory reductions in the OEM channel.
- Despite healthy unit growth, OEM revenue declined 1% year-over-year as the average selling price declined due to the mix shift in netbooks and continued mix shift to emerging markets, both of which have lower average selling prices than historical average selling price.
- Commercial and retail licensing business grew over 20% driven by continued strength in client annuity licensing as business customers recognize the value of Windows Vista enterprise offering.
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Server and Tools revenue grew 17% to $3.4 billion as annuity licensing grew faster than non-annuity licensing driving Server and Tools unearned revenue up over 28% from the prior year.
- This reflects continued customer commitment to the long-term product road map and underscores the increasingly critical role the server products perform in transforming customers IT departments into strategic assets.
- Demand for consulting and support services to deploy Microsoft technology remained strong, driving revenue growth of 19%.
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The Online service business grew revenue 15% to $770 million as online advertising revenue also grew 15% with search revenue growing faster than display revenue.
- The firm partnered with NBC to make the 2008 Beijing Olympics the largest ever media event on the web, showcasing Silverlight as it served up 70 million video streams and 600 million minutes of video content on NBColympics.com.
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Business Division revenue was up 20% to $4.9 billion exceeding the high end guidance by four percentage points.
- Business revenue grew 16% driven by strong sales of enterprise agreements and Client access license suites as Microsoft Office, SharePoint, Dynamics and Unified Communications all continued strong sales momentum.
- Consumer revenue grew 36% driven by higher than expected sales into the retail and OEM channels resulting from well received promotional pricing programs for the 2007 Microsoft Office system.
- Entertainment and Devices division revenue declined 6% to $1.8 billion though the firm sold 2.2 million Xbox 360 consoles representing over 20% growth.
Areas of Focus:
- Providing high value products at low total ownership costs as a competitive advantage in these times through products such as virtualization with Windows Server Hyper-V and System [sender] Management Tools.
- The second area of focus in the current economic environment is internal operational efficiency and expense management through lower headcount related costs, lower marketing expenses, lower CapEx spend on data centers and other general savings.
- It will also focus investment dollars in key strategic opportunities.
Fiscal 2009 Outlook:
