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Microsoft records record $60bn revenue

Reveals details of Yahoo bid

Microsoft has announced it has topped US$60 billion in yearly revenue for the first time in its history and posted a 25 per cent year-over-year gain in net income for its fiscal year 2008.

The company also provided financial details of its offer to buy Yahoo's search business including a lump payment of $1 billion, a stock investment and on-going revenue sharing.

The fiscal 2008 revenue gain was an 18 per cent increase over fiscal 2007, but it was with net income where the software giant showed a big increase from $14 billion in 2007 to $17.6 billion in 2008.

Microsoft also reported fiscal fourth quarter revenue of $15.84 billion, which was an 18 per cent increase over the fourth quarter of 2007.

Microsoft's fiscal year runs July 1 to June 30.

Chris Liddel, Microsoft's CFO, also took time to make a statement on Microsoft's proposal to acquire Yahoo's search business. He said he would not take questions, but he did lay out some of the particulars of the offer, including paying Yahoo $1 billion for its search business, and making an equity investment in Yahoo by purchasing 3.9 billion shares of Yahoo stock at $19.50 per share.

He said the proposal also included a 10-year revenue guarantee totalling $19.5 billion to $26.5 billion. Liddel said the guarantees were not conditional on search queries but tied to Yahoo's home page performance. He said the deal did not include changes to Yahoo's governance.

"We continue to believe our proposal is a compelling one," he said.

The company attributed 2008 financial gains to increased demand for Office, server software, Xbox games and consoles, and even Vista, which has been drubbed by the media and found rough sailing on the corporate adoption front.

Fiscal 2008 was highlighted by shipment of Windows Server 2008 and Visual Studio 2008, two of the infrastructure foundation pieces for its services strategy. SQL Server 2008, the third leg of the strategy, is expected to ship by the end of September (the first quarter of fiscal 2009).

The earnings report showed that the Client, Server and Tools and the Microsoft Business divisions were the only segments that did not show operating income losses for the quarter. For the year, those three divisions and the Entertainment and Devices division were the only ones to post positive operating income results, an indication that Microsoft continues to struggle in its newest businesses while relying on its historical cash cows and a Server and Tools business that has posted 24 straight quarters of double-digit growth.

"It was an outstanding year for the company," Liddel said during an earnings call with financial analysts and media. But he said he was not happy the results were not reflected in the company's stock price.

"Clearly we are disappointed that our strong financial results are not reflected in our share price because of general market turbulence combined with Microsoft specific issues including the uncertainty over the outcome of the Yahoo discussions," he said. Microsoft shares closed at $27.52 at the end of the day Thursday.

The report, however, was not all rosy. Microsoft continued to suffer in its Online Services Business, which is battling Google and others in online advertising and search. The division saw its operating income losses grow 100% for the fiscal year and 132% for the fourth quarter.

On the balance sheet for Microsoft, Client division revenue was $16.8 billion, up 13% over $14.9 billion in fiscal 2007. For the quarter, revenue growth was 15%, from $3.8 billion in fiscal fourth quarter 2007 to $4.3 billion in the fourth quarter of 2008. Microsoft attributed the increase to a 22% growth in revenue from commercial and retail licensing of Windows primarily from Enterprise Agreements.

The Server and Tools business revenue was $13 billion for fiscal 2008, an increase over $11.1 billion in fiscal 2007. For the quarter, revenue was up to $3.7 billion compared to $3 billion in the same quarter in 2007. The company said growth was primarily driven by volume licensing of Windows Server and SQL Server.

Microsoft Business revenue was $18.9 billion for fiscal 2008, a 15% increase over the $16.4 billion in fiscal 2007. For the quarter, revenue was $5.2 billion, a 14% increase over $4.6 billion in the fiscal fourth quarter 2007.

The $60 billion revenue figure for 2008 is but a stepping stone as Microsoft told financial analysts that the company is projecting revenue to hit between $67 and $68 billion in fiscal 2009.

Moves into areas such as online advertising, search, online services - such as Online Exchange and Online SharePoint - and virtualization are big initiatives for Microsoft in the coming year.


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