Two Divisions Carry Microsoft Profits

Two Divisions Carry Microsoft Profits

After several days of travel, blogging resumes, starting with a deeper look into Microsoft’s 2004 fiscal quarter. Earlier today, the company filed its 10-Q (here) with the Securities and Exchange Commission. I must say that the document is more interesting reading, simply for some of the surprises contained within.

During first quarter, four of Microsoft’s seven divisions reported operating profits. During second, only two divisions–Information Worker (Office) and Client (Windows)–posted operating profits. Part of the problem was Microsoft's change to employee compensation, which sapped profit off the top. But there is more to the losses than that.

Client pulled in operating income of $2.07 billion on $3.06 billion revenue, while Information Worker posted $1.67 billion on $2.9 billion. Server and Tools lost $204 million on $2.13 revenue. Business Solutions lost $69 million, MSN $79 million, Mobile and Embedded Devices $112 million (on $63 million revenue) and Home and Entertainment $394 million.

I am still plowing through the numbers, so I will be unusually brief. I would encourage anyone trying to figure how the Server and Tools business lost money on $2 billion in revenue to take a look at how the margins compare to the Office and Windows groups, which, by the way, show a margin decline. I would look at unearned revenue, too.

I may offer further analysis next week.  [Microsoft Monitor]

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