Microsoft profits up, but warns of difficulty ahead

19 April 2002 Microsoft has reported increased revenue and profit for its third financial quarter, but warned that sales in the current quarter and next financial year would suffer as a result of poor sales of personal computers and slow demand for its Xbox games console.

Profit for the third quarter rose 12% to $2.7 billion (€3.03 billion) from $2.5 billion (€2.8 billion) in the same quarter in 2001. And in a quarter in which many of the company’s rivals have reported a slump in sales, Microsoft’s revenue increased by 13% compared with the corresponding year-ago quarter.

According to John Connors, Microsoft’s chief financial officer, revenue growth was not as high as expected due to the continued slump in technology spending. In addition, poor sales of Xbox outside the US has forced Microsoft to lower revenue and profit expectations for its 2003 fiscal year, which starts in July 2002.

Despite this negative forecast, Connors said that he was looking forward to the coming quarters with some “guarded optimism”, referring to analyst predictions of a return to growth for PC shipments over the next six months.

However, first quarter worldwide PC sales figures from analyst group IDC suggests that the market remains stagnant. According to IDC, PC unit shipments were static, although Dell consolidated its position as global market leader with a market share of 14.3%, at the expense of rivals.

Sales of Microsoft’s flagship Office product have been badly impacted by the static PC market, only recording 1% revenue growth for the product in the third quarter. Sales of enterprise software were also hit, rising only 2% compared with 20% growth in 2001.

Microsoft’s controversial licensing plans should fuel growth in coming quarters. Since users will be forced into multi-year licensing agreements for the Office product, Microsoft will enjoy a much steadier and more predictable revenue stream.

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Ben Rossi

Ben was Vitesse Media's editorial director, leading content creation and editorial strategy across all Vitesse products, including its market-leading B2B and consumer magazines, websites, research and...

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