Cost cuts paying off?

Are all those unlaundered towels and skimpy coffee bags starting to benefit Microsoft's bottom line? Crunching the numbers from the company's first-quarter earnings report last week suggests that Microsoft's widespread cost-cutting efforts, while unpopular among some employees, are helping its financial results.

When compared with the same quarter last year, Microsoft's operating expenses rose a miniscule 1.4 percent in the recent quarter. In contrast, in the first quarter of Microsoft's previous fiscal year, operating expenses rose 7.4 percent. Had they risen by that same percentage in the most recent quarter, operating expenses would have been $5.44 billion, compared with the $5.14 billion actually reported. That's a difference of about $300 million.

Revenue, meanwhile, was up 12 percent in the recent quarter. That, combined with the relatively small increase in operating expenses, resulted in a quarterly operating profit margin of nearly 45 percent. As reflected in the chart above, that's significantly better than in quarters past. (Operating profit margin expresses operating profit as a percentage of revenue, indicating how well a company controls expenses related to its business operations.)

Lots of things can influence costs, and the company's financial statements put operating expenses into relatively broad categories, so it's difficult to tell how much of the difference can be credited directly to the overarching "cost-efficacy initiative," as the company calls it. But given CEO Steve Ballmer's stated aim to achieve about $1 billion in cost savings and efficiencies this fiscal year, the company would seem to be well on its way toward that goal.

Much more than towels or coffee, the cost-saving efforts involve everything from transit passes to reductions in the stock purchase discount, prescription drug benefits and vacation time for employees.

Posted by Todd Bishop at October 25, 2004 12:57 PM