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Businesses Boost Microsoft’s Q3 Earnings

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Buoyed by strong IT spending, Microsoft handily beat Wall Street estimates on record revenues of $17.41 billion for its third quarter (Q3), a 6 percent increase over the $16.4 billion the software giant brought in during the same period a year ago.

Net income dipped slightly to $5.11 billion in Q3 compared to last year’s $5.23 billion figure. Similarly, earnings per share fell to $0.60 versus $0.61 a year ago.

A Boom in Business Software

Microsoft’s fortunes are being increasingly driven by corporate spending, says Bill Koefoed, general manager of Investor Relations for Microsoft. “Businesses continue to make long-term investments in the Microsoft platform and as a result, multi-year licensing as a percentage of our total revenue grew to approximately 40 percent,” he said during an earnings call.

The company’s Server and Tools division saw a 14 percent year-over-year increase in Q3 revenues, a $4.57 haul of billion. The company credits double-digit growth in revenues generated from SQL Server to the division’s contribution to the bottom line. It helps that customers are opting for higher-priced editions of its software.

According to Koefoed, “SQL premium revenue grew more than 30 percent as customers increasingly selected the premium edition to power their business intelligence and mission critical workload needs.” Windows Server Premium revenues saw “high-teens” growth and System Center revenues improved by 20 percent.

Dynamics is another bright spot for Microsoft. Dynamics CRM experienced 30 percent revenue growth while the entire ERP and CRM suite saw an 11 percent improvement. According to Koefoed, there are “more than 2.25 million users and 33,000 customers who leverage Dynamics CRM every day.”

The Business division, which includes Office, grew revenues by 9 percent overall. The rise of “social enterprise” is having a positive effect on its financials, with Exchange and SharePoint posting double-digit gains. Revenues from Lync, Microsoft’s unified communications platform, grew by 35 percent.

As the company builds buzz around Windows 8, it expects the operating system’s predecessor to drive brisk adoption. “Today, approximately 40% of enterprise desktops worldwide are on Windows 7,” says Peter Klein, Microsoft’s Chief Financial Officer. The company sees “continued momentum” over the next two years as businesses say good-bye to Windows XP.

Windows 7 business PC sales were up 8 percent, while consumer PC sales lagged at 6 percent. The figures exclude netbooks, signaling that tablets like Apple’s iPad have hit the Windows-based netbook market hard.

Consumers Grow Elusive

Microsoft revealed that its consumer revenues grew a scant 2 percent in Q3. Its Entertainment and Devices Division, which includes Xbox, Xbox Live and Windows Phone, reported a loss of $229 million and saw Q3 revenues fall to $1.6 billion from the year prior’s $1.9 billion, a 16 percent drop.

A “soft gaming console market” is to blame, says Koefoed. However, the lack of specifics surrounding Windows Phone sales performance indicates that the software maker is having a tough time cracking a smartphone market dominated by Apple’s iPhone and handsets powered by Google’s Android.

The company also continues to struggle in search. Although revenues for the Online Services unit — home to Bing — grew 6 percent, it still reported a loss of $479 billion.

Pedro Hernandez is a contributing editor at, the news service of the IT Business Edge Network, the network for technology professionals. Follow him on Twitter @ecoINSITE.

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