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Microsoft's Server And Tools Business Swings To A Loss

In most-recent quarter, stock-based compensation and payroll expenses are responsible for the reverse.
Microsoft on Friday reported that its server and tools business swung to a $204 million operating loss in the December quarter, due to stock-based compensation costs and an increase in payroll expenses.

The software maker said in its quarterly filing with the Securities and Exchange Commission that the loss compared with a $234 million profit during the same quarter in 2002.

The loss occurred despite an increase in revenue for the unit, which includes Windows server and other server products, and development tools. Revenue for the fiscal second quarter ended Dec. 31 increased to $2.1 billion from $1.8 billion.

"Server and Tools operating income for the first six months of fiscal 2004 decreased to $166 million compared to $526 million in the prior year primarily due to the stock-based compensation costs from the employee stock option transfer program in the second quarter of fiscal 2004 and an 11 percent increase in operating expenses including headcount-related costs," Microsoft said in the SEC filing.

During its quarterly earnings announcements, Microsoft releases sales for its business units but doesn't release profit and loss for each segment until its formal SEC filing.

For its business-solutions unit, which represents Microsoft's multibillion-dollar investment in the small and midsize business-applications market, the company reported a narrower loss of $69 million, compared with a loss of $87 million the previous year. Revenue increased to $190 million from $135 million.

For Microsoft's other main units, the company reported that operating income for its client business, which includes the Windows desktop versions, increased to $2.07 billion from $1.95 billion. Revenue jumped 21% to $3.06 billion from $2.53 billion.

Profit for the information-worker unit, which includes the Office suite, was nearly flat at $1.67 billion from $1.66 billion in 2002. Revenue increased slightly to $2.9 billion from $2.3 billion.

For the remaining businesses, operating losses narrowed for MSN to $79 million from $197 million, and for home and entertainment, which includes the Xbox game console, to $394 million from $412 million.

Losses for the mobile- and embedded-devices unit, however, increased to $112 million from $75 million, while corporate and other expenses increased to $1.4 billion from $845 million.

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