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Server and Tools and Home and Entertainment Drive Record Results

REDMOND, Wash., Jan 27, 2005 /PRNewswire-FirstCall via COMTEX/ -- Microsoft Corp. (MSFT) today announced record revenue of $10.82 billion for the quarter ended December 31, 2004, a 7% increase over the results in the same period of the prior year. Operating income for the second quarter was $4.75 billion, which was an increase of $3.27 billion over the same period in the prior year. The results of the second quarter of the prior year included $2.21 billion in compensation expense incurred in connection with the Employee Stock Option Transfer Program. Net income for the second quarter was $3.46 billion. Diluted earnings per share exceeded the company's guidance by $0.04 and were $0.32 including stock-based compensation expense.

"Our record revenue came from across-the-board strength in both our business and consumer segments," said John Connors, chief financial officer at Microsoft. "And our long-term approach to growing new businesses is paying off. Home and Entertainment delivered its first profitable quarter and all three of the company's emerging businesses combined generated a nearly $700 million improvement in operating results compared to the second quarter of last fiscal year."

The Server and Tools business grew 18% versus the prior year's comparable quarter. Customer adoption of SQL Server(TM) remains particularly robust with over 25% year over year revenue growth. During the quarter, Exchange 2003 marked its one-year product launch anniversary and has had the fastest adoption of Exchange licenses ever. Customers who acquired Microsoft server products during the quarter included Eastman Chemical Company, Hewlett-Packard Company, Morgan Stanley and Premera Blue Cross.

The Home and Entertainment segment delivered record revenue during the quarter and achieved positive operating income. "Our Xbox(R) business fired on all cylinders and provided a strong ending to what was a great year for the platform and our partners," said Robbie Bach, senior vice president of the Home and Entertainment group. "Not only did we achieve record software sales with our strongest games lineup to date, but we also sold more consoles than our competitors during the critical holiday sales season in the United States, and increased Xbox Live(TM) membership to over 1.4 million members." During the quarter, 6.3 million units of "Halo(R) 2" were sold, resulting in a game attach rate of over 30% to the Xbox installed base of almost 20 million consoles.

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