Microsoft Corp. yesterday said that its Microsoft Business Solutions (MBS) business unit ended fiscal 2006 in the black on the strength of robust revenue growth and improved operational efficiencies in its recently concluded fiscal fourth quarter.
MBS's upbeat financials came as its parent company reported yet another period of record revenues, although its net earnings were negatively impacted by expenses tied to legal settlements and investments in its MSN business unit. The Redmond, WA, company also announced a $40 billion stock buy-back program aimed at stimulating its share value.
For the quarter ended June 30, MBS recorded operating earnings of $38 million, compared with a loss of $84 million in the like period last year. The profit was MBS's second of the fiscal year, enabling the business unit to eke out an operating profit of $24 million for the full year on revenues of $919 million. MBS posted $803 million in revenue in fiscal 2005.
Interestingly, the fiscal 2006 profit came a full year earlier than the company's revised projections -- which followed multiple financial setbacks in fiscal 2005. The profit was fueled by a confluence of events: MBS's improved operating leverage, which helped to lower spending; the delivery of long-promised functional enhancements across its enterprise applications lines (now marketed as Microsoft Dynamics); a weeding out of weaker channel partners and the provision of better selling tools to remaining resellers; and improved marketing and technical support, analysts said. MBS was also the beneficiary of a strong economy, and growing demand for enterprise applications in its sweet spot, -- the mid-market -- they added.
The synergies of the new Microsoft Dynamics brand, coupled with more efficient marketing spend, is paying dividends for MBS, noted Ray Wang, an analyst with Forrester Research in Foster City, CA. "[Microsoft also] has a better channel with superstar partners that are much more organized, and armed with the right tools," he added.
The results speak volumes. MBS's top line increased 16% from the corresponding quarter in fiscal 2005 to $280 million -- in line with expectations voiced earlier this year -- and well above the "low-teens" double-digit growth projected at this time last year. Enhancement revenue (i.e., license extensions, maintenance, and other services) also increased 16% in the period.
Fourth-quarter licensing revenue, meanwhile, grew 15% year over year to $23 million, fueled by continuing strength of the unit's Dynamics CRM 3.0 product and the emerging potency of its ERP software. Analysts pointed to the delivery of Dynamics AX (Axapta) 4.0 as evidence that MBS has its ERP act together.
Citing corporate policy, MBS declined to quantify growth by product line, vertical market or geography -- nor detail from which vendors it is taking business. "The growth has come from a variety of places, but mostly it has come from consolidation of smaller vendors, as well as growing with the overall market," an MBS spokeswoman wrote in an e-mail exchange with Managing Automation.
Colleen Healy, Microsoft's general manager of investor relations told financial analysts on a conference call to discuss the company's year-end results that MBS added over 50,000 new Dynamics CRM users during the quarter. " ... the product grew rapidly across all segments, geographies, and industry verticals," she pointed out, noting that growth came both from licensed implementations as well as off-premises on-demand delivery.
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