Microsoft results exceed expectations

Sales of Vista drive strong third quarter sales

Microsoft chairman Bill Gates

Sales of Windows Vista have helped Microsoft generate higher than expected third quarter revenues of $14.4bn (£7.2bn), a 32 per cent rise compared to last year.

Profits also rose 65 per cent to $4.9bn (£2.4bn), with consumer sales credited for the results. Some 71 per cent of desktop operating systems sales to consumers included the Windows Home Premium version of Vista.

But what remains unanswered is the level of adoption among enterprise customers, says Ovum analyst David Bradshaw.

‘It appears that there has been no rush yet - if there had, we are sure Microsoft would have said so,’ he said.

‘Further evidence comes from a comparatively high level of renewals on Microsoft’s Software Assurance programme, where clients get upgrades to Vista at no additional charge, suggesting users are giving themselves a breathing space of up to three years.’

However, Office 2007 exceeded all expectations, with customers growing 20 per cent year-on-year and deferred revenue also increasing profits for the quarter.

Microsoft Business Division, which is responsible for Office, increased sales 34 per cent to $4.8bn (£2.4bn).

‘There is no denying that Microsoft has had an excellent quarter, but it is not quite as good as the headline numbers indicate,’ said Bradshaw.

‘Revenue and operating profit were both boosted by $1.67bn from deferred revenue, which was recognised as soon as Vista and Office 2007 were available to consumers. Also revenue benefited from a fall in the dollar compared to the Euro and the Pound.’

But the big story is the uptake of Vista, says Bradshaw, with 85 per cent of desktop operating systems shipped on Vista compared to just 15 per cent on Windows XP.

Double digit growth in sales, operating income and earnings per share were pleasing, says Microsoft chief financial officer Chris Liddell, but it is looking to continue such growth into 2008.