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Microsoft Has A Dozen Billion Dollar Businesses -- Do You Know What They Are?
Microsoft reports earnings after market close today.
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Wall Street will probably focus mostly on Microsoft's two biggest businesses: Windows and Office.
A lot of the tech press will focus on the consumer businesses like Bing and the Xbox.
But Microsoft is actually a lot more diverse than that. Late last year, the company revealed it now has eleven products that pull in more than $1 billion in sales per year.
Skype will make twelve.
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Using Microsoft's recent earnings reports and past public statements, we estimated the company's annual revenue for each of these businesses. Except where noted, these are our estimates, not Microsoft's reported numbers.
Here they are.
This product line is used to manage software and hardware in corporate data centers. Microsoft named it to its billion-dollar club at the end of its last fiscal year in July 2010. The segment it's in, Server & Tools, showed 11% sales growth during the fiscal year that ended in June 2011 (FY'11).
Microsoft named this set of tools for programmers to its billion-dollar club last July. Like System Center, it's in the Server & Tools group, which grew 11% in FY'11.
This set of accounting, CRM, and ERP software products passed the $1 billion mark in 2010. This year, it grew 10%, so $1.1 billion seems like a reasonable estimate.
This is Kirill Tatarinov, who leads the Dynamics business.
Skype booked $860 million in sales in 2010, and was showing 40% revenue growth before the acquisition, according to Microsoft. So welcome to Microsoft's newest billion-dollar business.
Microsoft said this collaboration, intranet, and enterprise search product had sales of $1.3 billion back in its 2009 fiscal year, which ended June 30, 2009. It didn't grow much during fiscal year 2010, but a new version came out last June.
In FY'11, the Microsoft Business Division (which includes SharePoint, as well as Office) added $2 billion from business customers. It's safe to assume that at least 10% of that came from SharePoint licenses.
Microsoft revealed that Exchange Server -- its email server -- was around $2 billion back in FY'09. It didn't grow much in FY'10, but a new version came out right before FY'11 and was probably part of the $2 billion in sales growth that the Business Division saw during the year.
This number comes directly from Microsoft's last 10-K for the year ended June 30, 2011. This revenue came at a high cost -- the Online Services division in which Bing and MSN live had operating losses of $2.6 billion last year.
This often ignored business is actually one of Microsoft's most important products, and helps run a lot of businesses. Way back in FY'07, Microsoft disclosed that SQL had sales of close to $3 billion, and it's been growing at a steady clip ever since.
The OTHER Windows is required for all of Microsoft's other server software (SQL, Exchange, SharePoint), and is often used on a standalone basis by companies for everything from file sharing to hosting complicated corporate apps.
It may not be sexy, but it's Microsoft's third-biggest individual product.
Back in FY'07, Microsoft revealed this was approaching a $5 billion business, and it's grown pretty steadily since then so is probably near $6 billion a year now.
The Xbox business includes consoles, games, Xbox Live, and peripherals like Kinect (which on its own had $1 billion in sales just during the 2010 holiday season).
In Microsoft's FY'11 annual report, it said the "Xbox platform business" grew $2.7 billion or 48% from the previous year. That means a total revenue of around $8.3 billion.
This business isn't as profitable Microsoft's pure software businesses -- the Entertainment and Devices division in which it's housed had operating income of "only" $1.3 billion last year. Microsoft's other segments show much higher margins, except for its online business which is a money-loser.
The bulk of the revenue from Microsoft's Business Division (which took in $22 billion in sales last year) comes from the Office suite.
This is a rough estimate based on past statements of revenue for other products in the Business Division, taking into account growth figures for FY'11.
The Business Division added $620 million in consumer revenue during the last fiscal year, and it's a safe bet that almost all of this revenue was from the core Office suite (consumers aren't buying Exchange Server.) It also added more than $2 billion in business revenue, some portion of which came from Office.
Windows is still Microsoft's flagship product, and has had sales of more than $19 billion in each of the last two fiscal years. Because this product makes up its own segment for reporting purposes (Windows and Windows Live), we also know that it's incredibly profitable, with operating income around $13 billion a year.
No wonder CEO Steve Ballmer recently called Windows 8 the company's riskiest product ever.
Microsoft has never broken out revenue from its business online services -- formerly known as BPOS, now called Office 365 -- so it's not yet known if they top $1 billion.
Windows Phone is almost certainly not a billion-dollar business. Microsoft is estimated to earn about $15 in license revenue per phone, which means that it would have to sell more than 60 million handsets to top $1 billion. That might happen in 2012, now that Nokia is on board, but not in 2011.
Also missing from this list are prominent Microsoft products like Internet Explorer (part of Windows) and Hotmail (part of Windows Live, which is a minuscule part of the Windows division).
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