icrosoft has revealed for the first time that it has made profit margins of 85 per cent on its Windows system while its remaining businesses made losses, raising questions about the benefits of the group's costly efforts at diversification.
The client division, which markets Windows, generated operating profits last quarter of $2.48bn on revenues of $2.89bn, implying margins of 85 per cent.
The disclosure of its profitability, released in an SEC filing late last week, will infuriate many rivals. Microsoft was found guilty of illegally maintaining its monopoly in personal computer operating systems in 2000.
A subsequent settlement between the Department of Justice, nine US states and the company was widely criticised as being too lax.
Nine other states tried to have greater constraints placed on the company. But on November 1, their proposals were largely ignored by the district court in Washington DC, which formulated the eventual remedy and almost all the DoJ settlement.
Among Microsoft's other businesses, the home and entertainment di vision, which includes the Xbox games console, lost $177m in the quarter on revenues of $505m. Salomon Smith Barney estimates it loses about $120 on each console it sells.
MSN, the internet service provider and portal, lost $97m, down from losses of $199m in the same quarter last year, on revenues up from $431m to $531m.
The business solutions group, which provides software for small and medium-sized businesses and includes recent acquisitions Great Plains of the US and Navision of Denmark, lost $68m on revenues of $107m.
And the CE/Mobility division, which includes mobile telephone software and the Windows CE operating system for handheld computers, lost $33m on revenues of $17m.
Bill Gates, Microsoft's chairman, speaking yesterday in Las Vegas at Comdex, America's largest information technology conference and show, warned that investors and pundits were becoming too pessimistic about the prospects for innovation in the information technology industry.
The IT industry was struggling, but the rate of innovation and the industry's rate of growth were being underestimated.
A transition was taking place where the personal computer was becoming less important than personal computing.
Computing would increasingly be used in the home, at the office and on the move in devices other than personal computers.
Moreover, the economics of the IT industry was changing as technology continued to become increasingly affordable. He said Dell, the world's leading PC maker, intended for to enter the market for pocket PCs - fully functional PCs in a small format - costing $199, well below the prices of existing pocket PCs.
Similarly, the cost of server technology using Microsoft's Windows operating system was also rapidly falling. As technology became cheaper, so it would become increasingly pervasive.
