Strong growth in PC shipments combined with software purchases made in preparation for expected year 2000 problems helped push Microsoft's revenue and income to record levels in the second quarter of fiscal year 1999.
Net income for the quarter, ended December 31, was $US1.98 billion or 73 cents per diluted share, up 74 per cent from 42 cents per share a year ago. The results soundly beat the expectations of 23 brokers polled by First Call, who produced a consensus estimate of 59 cents per share for the quarter.
Revenues totaled $US4.94 billion, a 38 per cent increase over the $3.59 billion reported for the same quarter a year ago.
However, Microsoft is guarded about growth in 1999 because of the "uncertain international economic outlook", and because organisations are likely to scale back spending on software not related to solving expected year 2000 difficulties, said Greg Maffei, chief financial officer, in a statement.
He also warned of an uncertain economic outlook in which troubles affecting Asian markets may spread to other regions. "Business remains tough in China and Korea, business is very tough in Russia, and we saw down performance in Malaysia and Indonesia," Maffei said.
Sales of software licences to PC manufacturers soared 48 per cent to $US1.8 billion, driven by an increase of over 25 per cent in worldwide PC sales, especially in the sub-$US1000 category, Maffei said. Increased shipments of Windows NT also boosted OEM licence sales, he said.
Sales of Microsoft Office, SQL Server and Exchange all reached new highs for the quarter, with shipments of all server applications nearly doubling in the past year. Sales of Microsoft Exchange Server set a new record, shipping 4.5 million client access licences in the quarter, Microsoft said.
Overall platform revenues -- comprised mostly of operating systems sales -- grew 50 per cent in the quarter, to $US2.3 billion. Revenues from software applications and tools grew 27 per cent to $US2.2 billion, Microsoft said.
Asian markets produced only a slight up-tick in revenues, from $US328 million last year to $US373 million. PC sales grew slightly in Japan, especially in the retail segment, although revenues overall were more or less flat, Microsoft said.
Looking ahead, revenues in the third quarter could be down as much as $US300 million sequentially, thanks to seasonal slowness, economic troubles overseas and the possibility that companies will "lock down" on IT software spending.