Microsoft pays out on record revenues

By Matt Whipp

Posted on 17 Jan 2003 at 12:35

Microsoft announces first ever annual dividend and a two-for-one stock split, posting record revenues for the second quarter.

Software maker Microsoft waited until the financial market closed yesterday to announce its results and tell shareholders it would be making its first-ever annual dividend - of 16 cents a share - prior to splitting its stock two for one (creating more shares). This represents $870.6m, hardly rippling the surface of its $40bn ocean of cash.

Bill Gates could well be in line to receive around $100m over the course of the year from the new dividend program.

Microsoft dividend program comes hot on the heels of George Bush's proposal to abolish personal tax on company dividends, last week.

'We are especially pleased to be able to return profits to our shareholders, while maintaining our significant investment in research and development and satisfying our long-term capital requirements,' said John Connors, chief financial officer at Microsoft.

'We believe that the split, combined with an annual dividend, will make Microsoft stock even more attractive to a broader range of investors. We see enormous potential for growth in the software and technology sector, and remain committed to attracting investors who share this enthusiasm and take a long-term view of the company's growth opportunities,' he said of the stock split, the ninth split since the company floated in 1986.

The results surpassed expectations,with $8.54bn in revenues, up 10 per cent from the corresponding quarter last year. Strong performers for the quarter included sales in its Server Platform division, which includes Windows 2000 Server, showing a 12 per cent increase.

Online advertising showed something of a resurgence for MSN, helped along by the launch of MSN 8, resulting in a 40 per cent increase in revenues. Microsoft's Licensing 6 program continued to be a strong driver for unearned revenues that, although lower than the previous quarter when the controversial program was launched, still dropped $8.83 billion into the kitty.

Microsoft also said that Xbox had performed well in the run up to Christmas, pushing the figure for units sold to date to 8 million. Exactly what that means in revenues was not disclosed - and the figure pales compared with Sony's 50 million PS2 consoles. Fair enough, the PS2 has been around a couple of years longer, but the console had been selling at full price for a lot longer than the Xbox, of which Microsoft cut prices within months of its launch.

The company is reckoned to lose around $100 a console and the Financial Times reports that Xbox sales over the quarter were actually lower than expected, therefore narrowing losses and giving a new meaning to Microsoft's use of the phrase 'strong performance'. So whether 8 million consoles increased losses, profits or is just a step nearer to the critical mass where the operation breaks, Microsoft alone knows.

Net income for the quarter came in at $2.55bn, up from $2.28bn for the corresponding quarter in 2001. The earnings statement includes a $282m after-tax charge for investments and a $126m tax benefit from a favourable court ruling.

Diluted earnings per share were 47 cents, to include a 3 cent charge for the $1.1bn ruling from a class-action antitrust suit, along with other adjustments noted above.

Microsoft's outlook on the climate of the industry remained guarded. 'While we are very optimistic about the future of the technology sector, we do not expect to see a significant upturn in global IT spending in the short term,' said Connors.