Microsoft Shows 85Profit Margins for Windows

[Dave Farber <dave () farber net>]

Microsoft Shows 85Profit Margins for Windows

November 17, 2002
By PAUL ABRAHAMS, FT.COM




 

Microsoft has revealed for the first time that it has made
profit margins of 85 per cent on its Windows system while
its remaining businesses made losses, raising questions
about the benefits of the group's costly efforts at
diversification. 

The client division, which markets Windows, generated
operating profits last quarter of $2.48bn on revenues of
$2.89bn, implying margins of 85 per cent.

The disclosure of its profitability, released in an SEC
filing late last week, will infuriate many rivals.
Microsoft was found guilty of illegally maintaining its
monopoly in personal computer operating systems in 2000.

A subsequent settlement between the Department of Justice,
nine US states and the company was widely criticised as
being too lax. 

Nine other states tried to have greater constraints placed
on the company. But on November 1, their proposals were
largely ignored by the district court in Washington DC,
which formulated the eventual remedy and almost all the DoJ
settlement. 

Among Microsoft's other businesses, the home and
entertainment di vision, which includes the Xbox games
console, lost $177m in the quarter on revenues of $505m.
Salomon Smith Barney estimates it loses about $120 on each
console it sells. 

MSN, the internet service provider and portal, lost $97m,
down from losses of $199m in the same quarter last year, on
revenues up from $431m to $531m.

The business solutions group, which provides software for
small and medium-sized businesses and includes recent
acquisitions Great Plains of the US and Navision of
Denmark, lost $68m on revenues of $107m.

And the CE/Mobility division, which includes mobile
telephone software and the Windows CE operating system for
handheld computers, lost $33m on revenues of $17m.

Bill Gates, Microsoft's chairman, speaking yesterday in Las
Vegas at Comdex, America's largest information technology
conference and show, warned that investors and pundits were
becoming too pessimistic about the prospects for innovation
in the information technology industry.

The IT industry was struggling, but the rate of innovation
and the industry's rate of growth were being
underestimated. 

A transition was taking place where the personal computer
was becoming less important than personal computing.

Computing would increasingly be used in the home, at the
office and on the move in devices other than personal
computers. 

Moreover, the economics of the IT industry was changing as
technology continued to become increasingly affordable. He
said Dell, the world's leading PC maker, intended for to
enter the market for pocket PCs - fully functional PCs in a
small format - costing $199, well below the prices of
existing pocket PCs.

Similarly, the cost of server technology using Microsoft's
Windows operating system was also rapidly falling. As
technology became cheaper, so it would become increasingly
pervasive. 

http://www.nytimes.com/financialtimes/business/FT1035873352050.html?ex=10386
62208&ei=1&en=11f5196880dbab7d



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