Microsoft Revenue Up, Defers $1.5 Billion for Vista Upgrades

When Microsoft announced second fiscal 2007 quarterly earnings last week, officials also said they will defer reporting about $1.5 billion in revenues in the current quarter.

That $1.5 billion of deferred revenue being pushed from the second to the third quarter is primarily related to the technology guarantee programs announced last week for Windows Vista and the 2007 Microsoft Office system, which won't ship to consumers until after the Christmas selling season.

As for the company's first fiscal quarter, which ended September 30, Microsoft brought in $10.81 billion in revenues, an 11 percent increase over the same quarter of fiscal 2006. Operating income for the quarter was $4.47 billion, also an 11 percent increase compared to the same quarter last year. Net income for the quarter came in at $3.48 billion.

Among the highlights, Microsoft's server and tools revenue increased 17 percent year over year, reflecting healthy performance for SQL Server 2005, Windows Server, Visual Studio 2005 and BizTalk Server, the company said in a statement. SQL Server experienced revenue growth of more than 30 percent.

The technology guarantee programs enable customers who buy new PCs with various versions of Windows XP or Office 2003 between last Thursday and March 15, 2007 to upgrade for a fee -- and in some cases at no additional cost -- to Vista or Office 2007 when they become available.

For instance, if a customer purchases a PC with XP Home from a system builder, that customer can later upgrade to Vista Home Basic for $49 or to Vista Home Premium for $79. Customers who purchase a new PC from a system builder with XP Media Center Edition or XP Professional or tablet edition, will be able to upgrade to Vista Home Premium or Vista Business at no additional cost.

Meanwhile, customers who purchase Office 2003 preloaded on new PCs during that timeframe will be able to upgrade to Office 2007 without charge, according to a slide presentation for investors last week. Customers who purchase Office 2003 at full retail between October 26 and February 28, 2007 will also be able to upgrade for free to a comparable version of Office 2007.

For the third fiscal quarter, Microsoft officials predict $11.8 billion to $12.4 billion in revenues, which also reflects the $1.5 billion of revenue deferrals. The company anticipates operating income in the third quarter of between $2.9 billion and $3.1 billion.

Overall, the company's executives are figuring on revenues for the entire fiscal year, which ends June 30, in the range of $50.0 billion to $50.9 billion, with operating income expected to be $19.1 billion to $19.5 billion.

About the Author

Stuart J. Johnston has covered technology, especially Microsoft, since February 1988 for InfoWorld, Computerworld, Information Week, and PC World, as well as for Enterprise Developer, XML & Web Services,, and .NET magazines. Contact him at [email protected].