Vista & Office 2007 drive Microsoft profits

Microsoft said Windows Vista and Office 2007 shipments exceeded its expectations over the past three months and helped it post a record 65 percent third-quarter profit gain in its most recent quarter.

"We are clearly pleased with our performance in Q3," said Chris Liddell during the earnings call. "Windows Vista and Office 2007 are off to a very good start."

The company's client division, responsible for Windows on the desktop, grew its revenues 67 percent over the same quarter last year, and climbed 103 percent over the previous quarter.

Liddell credited the strong start of Windows Vista for the big boost in the group's numbers. Office 2007, which came out of the business division, was the quarter's other pillar. Its revenues increased 34 percent year-to-year, and 38 percent quarter-to-quarter. "Actually MBD [Microsoft Business Division] is the real success story," Liddell said.

According to Liddell, sales of both Vista and Office 2007 beat internal expectations. Vista's revenues were up $300 million to $400 million over estimates, while Office sales were $200 million better than anticipated. Vista's better-than-forecast gains were in part due to a more favourable sales mix of higher-priced Vista versions. "The premium mix is coming in above expectations," said Liddell, using Microsoft's terminology for Vista editions such as Home Premium, Business, and Ultimate. He said premium versions made up 71 percent of OEM Vista sales, driven primarily by Home Premium.

"We think we are going to see a continuation of this trend [toward premium SKUs]," said Liddell.

When a financial analyst asked for a breakdown of Vista's sales by version, however, Liddell pleaded ignorance, saying he did not have those numbers and would have to check with the Windows division before disclosing them. In late March, Microsoft trumpeted the sale of 20 million copies of Vista in the first month after its 30 January release.

Microsoft's fiscal fourth-quarter forecast shows that the Vista and Office 2007 revenue jumps won't be sustained. Liddell said that the client division's revenue should increase 14 percent to 15 percent over the same quarter last year, while the business group should see a 13 percent to 14 percent gain.

Going forward, however, Liddell made it clear that Microsoft is counting on Vista and Office 2007 to fuel several years of growth. For fiscal 2008, which for Microsoft starts 1 July, he projected that client operating system sales would break 85 percent for Vista, 15 percent for Windows XP. "That's very healthy for Vista," Liddell said, and represented a higher percentage of client sales than did Windows XP in its first year after release.

The strong Vista numbers were in contrast to CEO Steve Ballmer's February claim that the financial community was "overly aggressive" in its sales forecasts.

See PC Advisor's Windows Vista review and discuss the new operating system with other readers in our Windows Vista forum. Plus, see our Office 2007 review.

www.computerworld.com

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