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Microsoft Corporation (MSFT)

Q1 2013 Earnings Call

October 18, 2012, 05:30 pm ET

Executives

Bill Koefoed - General Manager, Investor Relations

Peter Klein - CFO

Analysts

Rick Sherlund - Nomura

Heather Bellini - Goldman Sachs

Adam Holt - Morgan Stanley

Mark Moerdler - Sanford Bernstein

Walter Pritchard - Citi

Kash Rangan - Merrill Lynch

Brent Thill - UBS

John DiFucci - JPM

Colin Gillis - BGC Financials

Philip Winslow - Credit Suisse

Ed Maguire - CLSA

Brad Reback - Stifel Nicolaus

Raimo Lenschow - Barclays

Greg Moskowitz - Cowen

Presentation

Operator

Welcome to Microsoft’s Fiscal Year 2013 First Quarter Earnings Conference Call. All lines have been placed in a listen-only mode until the question-and-answer session. Today's call is being recorded. If anyone has any objections, you may disconnect at this time.

And I would now like to turn the call over to Bill Koefoed, General Manager of Investor Relations. Bill, you may begin.

Bill Koefoed

Thanks Gabrielle and thank you everyone for joining us this afternoon. As usual, with me today are Peter Klein, Chief Financial Officer; Frank Brod, Chief Accounting Officer and John Seethoff, Deputy General Counsel.

On our website, microsoft.com/investor is our financial summary slide deck which is intended to follow our prepared remarks and provides a reconciliation of differences between GAAP and non-GAAP financial measures. Note that all growth comparisons we make on the call today will relate to the corresponding period of last year. Unless specified otherwise, all impacted numbers for the current quarter have been adjusted for the $1.2 billion revenue deferral related to the Windows upgrade offer and Windows 8 presales to OEMs and the $189 million revenue deferral primarily related to the Office offer.

As a reminder, we will post today's prepared remarks to our website immediately following the call until the complete transcript is available. Today's call is being webcast live and recorded. If you ask a question, it will be included in our live transmission, in the transcript and any future use of the recording. You can replay the call and view the transcript at the Microsoft Investor Relations website until October 18, 2013.

During this call, we will be making forward-looking statements that are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ because of factors discussed in today's earnings press release and the comments made during this conference call and in the Risk Factors section of our Form 10-K, Form 10-Qs and other reports and filings with the Securities and Exchange Commission. We do not undertake any duty to update any forward-looking statement.

Okay. And with that I’ll turn the call over to Peter.

Peter Klein

Thanks Bill, and thanks everyone for joining us. Our first quarter revenue was flat year-over-year at $17.4 billion reflecting solid growth in multiyear licensing, but a slowdown in transactional revenue. Our transactional revenue which includes our OEM business was impacted by a challenging PC market, normal purchasing slowdowns in advance of upcoming product launches and tough economic conditions, particularly in Europe. This impact was offset by growth in multiyear licensing revenue which benefited from healthy renewals of enterprise agreements as customers continue to make long-term commitments to the Microsoft platform.

Our productivity and infrastructure offerings remain a top priority for CIOs. In productivity, our collaboration and communications solutions continue to perform well, with double-digit revenue growth this quarter. In the datacenter, our virtualization capabilities and hybrid cloud scenarios are enabling enterprises to move to the modern datacenter on their terms. And on the data platform, we are well positioned to take share, as customers increasingly turn to SQL Server 2012 for their mission critical workloads and business intelligence needs.

As part of our ongoing focus to increase the overall value we bring to our customers, we are enhancing our unique hybrid IT capabilities, with targeted acquisitions like StorSimple and PhoneFactor. Acquisitions of industry leading solutions like these accelerate our ability to help CIOs better manage their environment.

As I mentioned earlier, the PC market was challenged this quarter. In addition to a tough economic environment and competitive pressures, OEMs drew down their Windows 7 inventory as they began the transition to Windows 8. Our partners are building an incredible breadth of hardware. To-date, we have certified over 1,000 unique Windows 8 systems, including beautiful new tablets, convertibles, laptops and all-in-ones and there will be more to come.

As I look at where we are, we have kicked off the largest launch wave in our history and in a 12-month period, we will have refreshed nearly all of our major products. With these launches, you are seeing the investments we’ve made over a number of years converge. And more importantly, you’re seeing us execute on our commitment to deliver devices and services that people love and businesses need.

Whether we build our own devices as we have chosen to do with Xbox and Service or work with our partners to develop stunning new Windows devices. We will continue to offer consumers and businesses wide ranging choices, so that every user can get exactly what they want at the price that is right for them.

With Windows 8 and our cloud services, we will delight users with an integrated experience across their devices. Right out of the box, Windows customers will be connected to unique communications, productivity and entertainment services from both Microsoft and our partners.

Services like SkyDrive, which allows users to store and manage their data online or the recently announced Xbox Music, which brings entertainment to the forefront. Users can access their content seamlessly from any device, at any time.

Read the rest of this transcript for free on seekingalpha.com