This summary is based on the fourth quarter fiscal 2008 earnings call conducted by Microsoft Corporation (MSFT) on July 17, 2008.
Management:
General Manager, Investor Relations: Colleen Healy
Chief Financial Officer, Senior Vice President - Finance and Administration: Christopher P. Liddell
Key Investors Issues
- EPS were 46 cents a share compared to 31 cents a share last year.
- Net income was up 42% to $4.3 billion compared to $3.04 billion a year earlier.
- Revenue climbed 18% to $15.84 billion.
Fourth Quarter Highlights
Revenue grew 18% to $15.8 billion, with every business growing in the mid-teens or higher.
- Annuity sales mix, which is approximately 40% of billing revenue, continued to grow on both a year-over-year and sequential basis, with enterprise agreement renewal rates in line with historical trends.
- The remainder of product billings was approximately 25% from OEM, around 15% from license only sales, and the balance from other businesses.
- Unearned revenue grew 21% to $15.3 billion, over $600 million above high-end guidance.
- Contracted not billed balance increased both sequentially and year over year to over $13 billion, about $3 billion above where the company started the fiscal year. When taken together with reported revenue, total bookings for the company grew 23%, driven by over 20% bookings growth for core businesses of server and tools, client, and the Microsoft business division.
- Overall, changes in foreign exchange rates added about four percentage points to revenue growth.
- The company estimates that the PC unit growth rates returned to the 12% to 14% range that the company experienced in the first half of the fiscal year. This is about three points above forecast, due to improvements in mature markets, including in the United States. This helps to drive client revenue growth of 15% to $4.4 billion, which was over $150 million above high-end guidance.
OEM license units increased by 22%, about nine points faster than the overall hardware market.
- OEM unit growth outpaced that of the PC market, primarily driven by a couple of factors: one, OEM partners always have channel fluctuations. With this quarter, the company estimates were a combination of replenishing the channel from lower third quarter levels as well as buying hit some pricing tiers during the quarter; and two, the company returned to the trend of making gains on piracy, including in Asia.
- OEM revenue increased by 13%. The difference between OEM revenue and unit growth is due to three trends: one, volume mix shift towards emerging markets, which generally have lower ASPs; two, channel mix shift towards large OEMs with volume pricing; and three, premium mix shift toward consumer premium offerings. Specifically, while business and consumer premium units were up year-on-year and the overall OEM premium mix remained unchanged from the prior year at 72%, the premium mix composition shifted down four points of business premium and up four points of consumer premium.
- The remaining 20% of client revenue comes from commercial and retail licensing. This portion of the business grew over 20%, driven by continued strength in client annuity licensing as business customers continued to demand enterprise offerings, including those that help them more efficiently manage their desktop infrastructure.
- The company surpassed the 180 million for Windows Vista licenses sold to date and Windows Vista had driven client revenue to an average growth rate of 16% since it became generally available.
- Server and tools revenue was $3.7 billion, growing an outstanding 21% on top of the string of the fourth quarter double-digit growth quarters.
- Driving server and tools unearned revenues increased 37% from the beginning of the year. Demand for consulting and support services remains strong, driving associated revenue growth of 30%.
- The company released eagerly anticipated virtualization feature, Hyper-V, two months ahead of schedule.
Online services business grew revenue 24% to $838 million.
- Online advertising grew 18%, including $33 million of ad revenue from aQuantive. While both search queries and page views were up and in line with expectations, monetization lagged, driven by tightening advertising budgets combined with a more competitive display pricing environment.
- The company continued to attract users to properties with live IDs hitting 460 million, up 80 million from last year. The company grew the number of advertisers utilizing advertising platform by 28% during the year.
- The company closed the acquisitions of FairCast, which offers technology to aid in the purchase of online tickets at the lowest price, and Navic Networks, which develops tools to deliver targeted ads to television set-top boxes.
- In May, the company announced the beta launch of Live Search Cashback. Since then, the company has 680 merchants participating in the program with about 200,000 registered users.
Microsoft business division revenue was up 14% to $5.3 billion. The business element of MBD revenue grew almost $700 million, or 19% on both strong enterprise agreement signings and license only sales.
- Consumer revenue declined $66 million, down 7%. This reflects both a difficult comparison to last year’s quarter following the Office 2007 launch, and a continuation of a shift towards lower price consumer SKUs.
- Emerging business product momentum continues, with SharePoint revenue up over 30% and unified communications revenue up over 20%. The company completed the acquisition of Fast Search & Transfer, expanding spectrum of enterprise search solutions for customers.
- Dynamics business had a good quarter, with customer billings growth of 22% and two product releases, Dynamics AX2009 and Dynamics CRM Online. Dynamics CRM continues to deliver the function and flexibility customers want, evidenced by over 120,000 CRM seats being sold.
- Entertainment and devices division grew revenues 37% to $1.6 billion. The company sold 1.3 million Xbox 360 consoles, representing 88% growth over the prior year and passing the milestone of 20 million consoles sold life to date.
Operating expenses increased $1.1 billion, or 19%, driven primarily by headcount related costs, acquisition related expenses, and marketing related expenses.
- Expenses came in $500 million higher than guidance, split rather evenly between cost of revenue and operating expenses.
- The company sold more Xbox 360 consoles than guidance had reflected. In server and tools, the higher revenue growth in consulting and support services carries higher associated costs than does software revenue. In online services business, the company was able to bring servers in data centers online faster than expected and invested in premium online content.
