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Microsoft 4Q beats Street
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July 19, 1999: 7:31 p.m. ET
Software colossus posts earnings of 40 cents per share, topping estimates
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NEW YORK (CNNfn) - Microsoft Corp. reported a record $2.2 billion profit Monday, beating Wall Street expectations, as orders continued to pour in for the company's Windows and Office software products.
For the fiscal fourth quarter ended June 30, the Redmond, Wash.-based software maker earned 40 cents per diluted share, up from $1.36 billion or 25 cents a year earlier. Analysts on average had expected earnings of 36 cents a share, according to First Call. Revenues rose 39 percent to $5.76 billion from $4.15 billion.
At the same time, the software giant took pains to warn analysts that its record performance will not be repeated next year - something the company has done in previous years ahead of what it anticipates will be a slower period of growth.
"Summing it all up, no matter how you look at it, it was a good quarter," said Microsoft Chief Financial Officer Greg Maffei. "However, net revenue growth in fiscal 2000 will be slower."
Office 2000 a hit
For the latest quarter, there was certainly no obvious sign of a slowdown. Demand for Office 2000, Windows 98 and several of the company's server products, including Windows NT, drove earnings higher during the latest quarter, Maffei said. Its Office software packages, in particular, helped boost the bottom line as more businesses adopted the company's suite packages.
Microsoft commands almost 90 percent of the office-suite software market. An Office suite is a software package that includes word processing, spreadsheet and other programs together.
Demand for Windows NT, the software that works with high-speed servers in many offices, was much stronger than expected, boosting quarterly revenues to new records, Maffei said.
"The NT servers in this quarter, that was a real nice up-tick," he said.
Other areas of business also performed well in the quarter, particularly Windows NT and Windows 98 pre-loaded onto computers on the factory floor. Even though prices for PCs have fallen substantially of late, Microsoft earns the same royalty on its software, helping boost the bottom line, Maffei said.
Lots of pre-loaded software
Fourth-quarter revenues for original equipment manufacturers, or OEMs, rose 27 percent to $1.64 billion. For fiscal 1999, OEM revenue rose 36 percent to $6.4 billion.
And the software giant showed a lot of initiative in getting into the broadband Internet access market during the latest quarter, with the announcement of a $5 billion investment in AT&T, a $600 million in Nextel Communications and another $400 million investment in Toronto-based Rogers Communications Ltd., among others.
All in all, the latest results extend a pattern for Microsoft; it now has beat earnings forecasts for the past seven quarters.
At the same time, slowing demand for new personal computers, expenses related to year 2000 compliance and uncertainty about the economy's prospects next year probably will keep Microsoft earnings from accelerating in 2000, Maffei said.
Earnings may slow: warning
Microsoft's first fiscal quarter, in particular, will show a slowdown in both earnings and revenues, particularly in North America as PC sales fall and as consumers and businesses hold back on their software purchases ahead of Y2K.
The remainder of the fiscal year will show an upward trend for earnings, though not at the same pace as in fiscal 1999.
Microsoft share price during the past year
Whether or not investors are willing to go along for that particular ride remains to be seen. In after-hours trading, the stock dipped to 96-3/4 then rose as high as 100-1/16. Microsoft ended the day Monday down 1-1/16 at 98-3/8 on the Nasdaq stock market. The results were released after the bell.
For the fiscal year, Microsoft recorded a profit of $7.79 billion, or $1.42 per share, up 73 percent from $4.49 billion, or 84 cents, in fiscal 1998. Revenue for the year was $19.75 billion compared to 1998 revenue of $15.26 billion.
One highly publicized issue for Microsoft that appeared to have no impact on the bottom line was the landmark antitrust trial. The U.S. Justice Department and 19 states have accused Microsoft of using illegal tactics to extend its near-monopoly in operating systems to the Internet market. Testimony ended last month. 
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