23 January 2004 Microsoft’s revenues nudged past the $10 billion barrier in its fiscal second quarter to the end of December, driven by strong PC sales and demand for the latest release of its office applications suite, Office 2003.

Revenues totalled $10.15 billion, up 19% from the $8.54 billion reported in the same period a year earlier. However, about $300 million — or 4% — of that increase was attributed to the declining value of the dollar.

On top of that, net income fell from $2.23 billion to $1.48 billion as a result of a rise in research and development spending and the costs associated with the company’s stock options scheme.

Chief financial officer John Connors also outlined the company’s strategic priorities for the next year. “We will continue to focus on driving broader customer adoption of our latest enterprise products, including Office 2003, Windows Server 2003, Exchange Server 2003 and Small Business Server 2003,” said Connors.

However, the continued decline in deferred income indicated that major corporate clients may have become reluctant to sign up to long-term licensing and support agreements, suggested Rick Sherlund, an analyst at investment bank Goldman Sachs.

The company has been forced to drastically cut licensing and support fees for flagship clients as they play-off the software giant against open source alternatives.

That negotiating tactic was starkly illustrated this week when London’s Newham Borough Council negotiated a new deal with Microsoft that will enable it to slash its licensing bill, upgrade its Exchange 5.5 email server and receive a substantial level of free support.

That deal is likely to be followed throughout the UK local authority sector, saving councils “hundreds of millions of pounds”, according to Eddie Bleasdale of Netproject, which was behind the open source desktop alternative pitched to Newham.