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The world's largest software maker Microsoft has posted its best first quarter for revenue growth since 1999, with third quarter results showing $13.76 billion in revenue, a 27 percent improvement over last year, the  company reported yesterday. Microsoft shares jumped nearly 12 percent during after-hours trading Thursday, after Microsoft announced net income of $4.29 billion, 23 percent higher than the $3.5 billion seen during the same quarter last year. While revenue from Microsoft's software divisions continues to increase, including a 90 percent increase in the unit responsible for the hit video game Halo 3, one of the company's weakest areas is its online services unit, which had a quarterly loss of $264 million, more than twice that in the same quarter last year, with revenue amounting to less than 6 percent of its quarterly sales. The strong growth the report shows, especially in Microsoft's core software such as the Windows Vista operating system and Office 2007, surprised some analysts who didn't expect such rapid sales. Online Advertising Among Worst Performers The report shows the online advertising and Internet services markets to be experiencing some of the slowest growth rates at Microsoft, which is trying to make up ground in a race led by search leader Google. The report was released after the close of financial trading in the U.S. on Thursday, and Microsoft also announced that it is raising its financial forecasts for both the fiscal year and the present quarter. Microsoft shares closed at $32.01 Thursday, a 76 cent increase for the day, however trading after the encouraging report was released resulted in shares rising to $35.76, up nearly 12 percent. Earnings Numbers Microsoft's revenue for the quarter beat out analyst expectations by $1.16 billion, brought about by strong software sales. Office and Windows Earnings Microsoft's Windows unit saw sales exceeding $4.14 billion, a 25 percent gain over the same quarter a year ago. The company's Office group had similar sales figures totaling $4.11 billion, a 20 percent increase. Part of the increased Windows and Office sales appears to come from a greater number of people purchasing the more expensive premium versions of the software, while additional sales may also come due to better than expected sales of personal computers worldwide. Server Unit Earnings Joining Office and Windows as Microsoft's top earners is the company's server unit, which saw sales for the quarter rise 16 percent, to $2.9 billion for the unit which makes back-end business software. Large Increases from Games Spurred by sales of the hit video game Halo 3, Microsoft's entertainment and devices group increased to $1.9 billion, a whopping 90 percent increase of the groups performance in the same quarter last year. The group has experienced such growth that, after losing $142 million last year, it finds itself with a $165 million pretax profit. Online Advertising Numbers Less Impressive The report shows that while Microsoft may be doing well in the areas where it has traditionally met with success, it is not making the kind of inroads in the emerging new markets of online advertising and Web services that may be needed it the company is to challenge industry leader Google. What effect Microsoft's May purchase of online advertising agency aQuantive for $6 billion, or the company's recent $240 million stake in the rapidly growing social networking company Facebook, remains to be seen. With an earnings report showing the company's online services group accounting for only less than 6 percent of its total quarterly sales, there is much work ahead to reach the 25 percent figure that CEO Steve Ballmer has spoken about hoping to reach over the next few years. Ballmer recently noted the 25 percent figure at a conference in Europe. There was one 25 percent figure among the report which related to the online services group. Earnings for the group totaled $671 million, a 25 percent increase over the same period last year. Related Links:
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10:51 am on Oct. 26, 2007 (utc 0)