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Microsoft continues to make tidy profits

On the face of it the figures revealed by Microsoft look rosy, but the company is likely to experience its biggest revenue challenge for several years over the course of the next twenty-four months as the threat from open source, especially Linux, begins to take effect. In this article, reprinted from, writer Tony Lock weighs in.

Market Analysis

Microsoft continues to make tidy profits
Outside of taxation and attempts at its evasion, there are few things in life or in IT can be safely considered as "inevitable". However, for the time being one of the small number of matters that comes close to being a certainty is the ability of Microsoft Corporation to make a not-inconsiderable profit.

Last week the software mammoth announced revenue of $8.07 billion for the quarter ended June 30, 2003, an 11 percent increase over revenue of $7.25 billion for the same period in the prior year. From this tidy sum the company managed to make net income for the quarter of $1.92 billion, including $533 million in after-tax settlement charges, compared to $1.53 billion reported in the previous year, which included an after-tax charge for investment impairments of $806 million.

This quarter's returns made significant contributions to the results of total revenues of $32.19 billion for the fiscal year ended June 30, 2003, a 13 percent growth compared to those announced last year. Net income for fiscal year 2003 was $9.99 billion versus the $7.83 billion of the previous year, an increase of some 32 percent.

It is worthwhile noting that server revenues did particularly well with Server Platforms overall reporting revenue growth of 17 percent compared to the fourth quarter of last year. Much of this increase came from a 24 percent growth in Windows Server revenue and a 34 percent expansion in Microsoft SQL Server revenue. Interestingly MSN reported record income with a 25 percent growth in income fuelled by 48 percent growth in advertising revenue.

Microsoft's $796 million settlement with AOL-Time Warner in the early summer adversely affected the results with dramatic moves in foreign currency helping revenue figures but increasing costs on the marketing side.

On the face of it the figures revealed by Microsoft look rosy, but the company is likely to experience its biggest revenue challenge for several years over the course of the next twenty-four months as the threat from Open Source Software (OSS), especially Linux, begins to take effect.

OSS software is beginning to mature on both the infrastructure and applications fronts. This is still a relatively young market and many potential users are still standing on the sidelines trying to establish the "form" and likely staying power of both Microsoft and the many OSS contenders. It will be fascinating to see if the general approach of OSS will tempt Microsoft and other leading ISVs to experiment with more "open source" like licensing terms, perhaps utilizing a "maintenance only" or "monthly usage fee" approach.

The senior management within Microsoft now recognize both the strengths and weaknesses of Open Source and have adopted a realistic and sensible attitude to Linux and OSS in general.

Microsoft is still The Giant software supplier and as the incumbent Gorilla in the market place it will be very hard to move. The company has a strong line up of solutions and it is also branching out with the provision of select, targeted service skills.

Beyond this, Microsoft has a massive war chest of cash and influence and it is likely that the company will continue to acquire technologies and personnel wherever it sees the opportunity. Microsoft is still a very, very powerful organization and one that shows no sign yet of fading away.

Copyright 2003. Originally published by, reprinted with permission. provides IT decision makers with free daily e-mails containing news analysis, member-only discussion forums, free research, technology spotlights and free on-line consultancy. To register for a free e-mail subscription, click here.

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