Microsoft Reports Pre-Windows 7 Declines For Revenues And Profits. No More Excuses.
FY10 Q1 Slides Flattened

Microsoft announced another down quarter this morning. Revenues in the September quarter were down 14 percent to $12.92 billion, and net profits declined even further to $3.57 billion, or $0.40 a share. The consensus estimate was $0.32, so Wall Street is happy and the shares are rallying (up 10 percent in early-morning trading).

Investors will forgive the poor performance coming out of the recession (are we out of that yet?), because they hope that yesterday’s launch of Windows 7 will bring back the shine to the stock. If you look at revenues for the Windows business, it certainly looks like both businesses and consumers have been delaying purchases and upgrades in anticipation of the new operating system. The Windows business saw revenues decline by 37 percent, or $1.7 billion, from last year, to $2.6 billion. The closely-related Business division, which includes Office, was down $500 million in revenues, to $4.4 billion.

Microsoft needs to revive these franchises with Windows 7 at a time when it is increasingly under attack by cloud-based productivity apps from Google and others. But Windows 7 should give Microsoft some cover as corporations go through their robotic upgrade exercises. The company recorded $1.5 billion in deferral revenue associated with Windows 7, which pretty much covers the gap from last year.

The two businesses which held steady in terms of revenue were Servers and Tools ($3.4 billion) and Entertainment ($1.9 billion). Microsoft sold 2.1 million Xboxes in the quarter, and is no selling an average of 8.7 games per console, more than any other videogame console. Profits nearly doubled to $312 million, and Xbox Live revenues grew more than 50 percent, although Microsoft does not specify the absolute number.

Looking at Microsoft’s online business, once again the loss in that business ($480 million) was almost the same as its revenues ($490 million), which implies that it is actually losing twice as much as it is bringing in. We saw the same trend last quarter, as Microsoft continues to invest heavily in this business via Bing and other products. Online advertising revenues were down 3 percent (at least that was better than Yahoo’s 12 percent decline), and search ads from Bing saw a “mid single digit” increase.

Below is a table breaking down Microsoft’s revenues by operating division (click to enlarge):

MSFT 3Q revs