Microsoft's earnings beat expectations

Microsoft's earnings beat expectations

Microsoft this week credited strong sales of Windows NT Workstation, Office, Exchange Server and SQL Server for helping to boost the company's third-quarter earnings to $US1.92 billion, or 35 cents per share, 3 cents higher than expectations and 40 per cent higher than a year ago.

Revenue for the quarter that ended March 31, 1999, totalled $US4.33 billion, a 15 per cent increase over the $US3.77 billion for the third quarter a year ago. A year ago, third-quarter earnings were $US1.34 billion, or 25 cents per share.

A median of 22 analysts polled by First Call predicted Microsoft would report third-quarter earnings per share of 32 cents.

The current and prior share amounts reflect a two-for-one stock split the company conducted last month.

In addition to the strong product sales, the company's results in Asia were "much improved", said Greg Maffei, chief financial officer, in a statement. The company benefited from investment gains of more than $US350 million during the quarter.

In the product groups, platforms product revenue grew 26 per cent to $US2.05 billion; applications and tools product revenue grew 4 per cent to $US1.94 billion; and interactive media and other revenue was up 22 per cent to $US341 million.

Third-quarter revenue from PC manufacturers, the primary distribution method for Microsoft software, was $US1.59 billion, a 29 per cent increase over the same period a year ago. This was due, in large part, to an increase in the numbers of PCs shipped, as well as increased penetration of Microsoft's Windows NT Workstation operating system, company executives said in a conference call.

Geographically, overall revenue in the South Pacific and Americas grew 6 per cent to $US1.33 billion, while specific revenue growth was moderate in the US and flat in Latin America and the South Pacific.

For the quarter in Europe, the Middle East and Africa, revenue was up 4 per cent to $US932 million. Revenue growth was solid in France and Germany, and was particularly good in the UK, Sweden, the Netherlands and the Middle East, Microsoft said.

In Asia, revenue increased 22 per cent to $US475 million. Desktop applications, as well as PCs, had strong sales, particularly in Japan. China, India and Southeast Asia had "superb" growth, Maffei said.

Meanwhile, research and development expenses increased 2 per cent to $US611 million; sales and marketing expenses were $US996 million; and general and administrative costs were $US144 million, up $US40 million from last year, partly because of higher legal costs, executives said. Microsoft is presently involved in separate ongoing legal battles with the US Department of Justice and Sun Microsystems.

Cash and short-term investments totalled $US21.76 billion and third-quarter investment income increased to $US720 million.

Meanwhile, Maffei said company executives remain guarded about growth in 1999 as a whole, echoing statements made practically every quarter, given the likelihood that organisations will "lock down their systems infrastructures" due to year 2000 concerns.

"Some large organisations are already delaying projects when you look at the relatively slow growth rate of NT Server and Office," in the US, Maffei said. However, many smaller organisations are continuing to buy PCs, he said.

Meanwhile, Microsoft expects to see $US400 million from Office 97 and other customers who are eligible for a free upgrade to Office 2000 when the new version of the desktop applications suite becomes generally available, Maffei said. Microsoft released the English-language version of Office 2000 to manufacturing in March and is shipping it to volume licence customers this month. It will be widely available in US stores on June 10.

Microsoft was up 2.12 points to $US83.12 on the Nasdaq stock exchange on Tuesday.

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