Microsoft’s Record-Breaking Q3

Microsoft has reported a record-breaking Q3 revenue of $17.41B while increasing its operating income by 12% to $6.37B (quarter ending 3.31.2012), further strengthening its prominence. These results exceeded the consensus expectation of financial analysts polled by Thomas Reuters, even taking into account the poor performance of Microsoft’s Entertainment & Devices Division, where revenue decreased 16%.

All of Microsoft’s other business division revenues increased year over year (y-o-y): Server and Tools (14% increase – 20% growth in System Center Revenue), Business (9 % increase), Windows and Windows Live (4% increase – 40% of enterprise desktops worldwide are on Windows 7), and Online Services (6% increase).

As a strong indicator of companies making investments in Microsoft’s platform, multi-year licensing as a percentage of total revenue grew approximately 40%. In fact, within the Business Division, multi-year licensing grew 13%. There was also strong Enterprise Agreement growth in both new business and renewals. At the end of the quarter, new revenue was $15.2B (up 17%), and the contracted not billed balance was over $19B.

Microsoft is forecasting a strong Q4 performance as well. Microsoft expects:

• Multi-year licensing revenue (which is approximately 60% of the Business Division total revenue) to grow low double digits in Q4
• Transactional revenue to generally track with the server hardware market, and multi-year licensing and Enterprise Services revenue to both grow in the high-teens
• COGS to grow 8 to 12 percent in Q4. As has been the case in prior quarters, the mix of revenues will continue to impact this number
• To revise its operating expense guidance downward to $28.3 from $28.7 billion for fiscal 2012

What do these results mean for YOU?

Microsoft has had a fantastic Q3. Typically when a vendor achieves a record-breaking quarter it becomes even more difficult than usual to achieve an optimal deal. This is even more the case when Microsoft posts record-breaking quarters. Still, negotiating with Microsoft does not have to be an oxymoron if you follow an appropriate timeline and put strategic advice and insights into action.