Microsoft cleans up as Windows 7 gives £4bn boost

Published on Friday 29 January 2010 20:20

MICROSOFT has reinforced its position as the world's dominant software provider after banking $6.7 billion (£4.2bn) of profits in just three months as consumers flocked to buy its latest operating system.

• CEO Steve Ballmer: Microsoft has 92% of OS market share. Picture: Getty

Record-breaking sales of Windows 7 – the latest version of the group's universal operating system, which was launched in October – led to pre-tax profits nearly doubling in its operating systems division to $5.4bn.

The results highlight Microsoft's stanglehold on operating system software. According to figures from Net Intelligence, the company has a 92 per cent share of the market, with its nearest rivals – Apple and Linux – holding 5 per cent and 1 per cent stakes respectively.

Microsoft has sold more than 60 million Windows 7 licenses making it the fastest selling operating system in history.

Chief operating officer Kevin Turner said: "This is a record quarter for Windows units. We are thrilled by the consumer reception to Windows 7 and by business enthusiasm."

Peter Klein, chief financial officer, added: "Exceptional demand for Windows 7 led to the positive top-line growth."

While domestic customers queued up to buy the latest operating system, big companies kept their hands in their pockets, and the division that makes Office and other business products posted a 3 per cent revenue dip.

An ongoing lull in corporate spending was also blamed for the fast-growing server software division only posting a 2 per cent rise in turnover.

Group sales in the three months to the end of December – Microsoft's second financial quarter – rose by 14 per cent year-on-year to $19bn, ahead of analysts' forecasts of $17.8bn. The rise in overall profits was 60 per cent.

Consumer demand was also fuelled by the growth in the market for cheaper laptops and the smaller and less powerful netbooks. Intel, the largest maker of microprocessors for computers, also reported strong sales in consumer segments but ongoing weakness in business PCs.

The second-quarter results for Microsoft's operating systems division included $1.7bn in deferred revenue for Windows sales made during earlier quarters but not recorded until after the launch of the product in October.

Beyond the boost from deferred revenue, the Windows division did far better than analysts had predicted. More people than expected went out to buy boxed copies of the operating system to install on older computers.

Sid Parakh, an analyst for McAdams Wright Ragen, said: "I would say it was a great quarter."

Microsoft is expected to release a new version of Office this year, with increased competition from Google's web-based word processing, spreadsheet and other software applications.

The company also continues to pour money into its web search and advertising operations as it attempts to close the gap with market leader Google. But Microsoft said the division widened its loss in the quarter, hurt by declines in display advertising revenue.