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Microsoft 3Q beats Street
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April 20, 1999: 8:02 p.m. ET
Strong Office sales help propel 15-percent hike in revenue, $1.9B profit
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NEW YORK (CNNfn) - Microsoft Corp. Tuesday reported fiscal third-quarter earnings of $1.9 billion, once again beating Wall Street estimates as the software titan continued to post strong sales of its Office suite of software products.
For the quarter ending March 30, the Redmond, Wash.-based company posted a profit of 35 cents per share as revenue jumped 15 percent to $4.3 billion. Analysts polled by First Call expected Microsoft (MSFT) to earn 32 cents a share.
Microsoft outstripped last-year's performance, when it reported a profit of $1.3 billion, or 25 cents a share (adjusted for a recent 2-for-1 stock split), on $3.8 billion in revenue.
Microsoft shares rose 2-1/8 to close at 83-1/8 on the Nasdaq stock market prior to the announcement, then fell to 82-1/8 after the earnings report was released.
Microsoft shares over the last three years
Greg Maffei, Microsoft chief financial officer, said the company continued to report strong sales of the Microsoft Office software suite "despite the impending upgrade."
The third quarter results do not include about $400 million in revenue from early sales of Microsoft's new Office 2000 package of business software, most of which the company said it would defer into the current quarter. Office 2000 goes on sale in retail outlets on June 10.
The $400 million in unreported revenue was offset by $350 million in realized investment gains during the quarter. Analysts had factored those gains into their estimates, according to First Call.
Microsoft included a coupon for a free upgrade to Office 2000 for customers who purchase Office 97 in the third quarter. Under federal accounting regulations, the company cannot recognize the revenues for Office 2000 until it ships the upgrade to customers who redeem the coupons.
Microsoft, the world's largest software maker, is currently fighting government charges the company has used its dominance in the operating system market to bully competitors and partners.
NT sales strong
The company said it enjoyed strong growth in shipments of the Windows NT Workstation operating system and its high-margin corporate software products. Licenses for Microsoft SQL Server 7, which competes with database-software giant Oracle Corp. 's (ORCL) offerings, rose more than 50 percent from last year's third quarter.
Microsoft also said revenue from copies of Windows 98 preinstalled on PCs rose 29 percent to $1.6 billion, which belied fears of weaker demand in the computer industry.
"While there have been jitters, the PC market remains fundamentally healthy," Maffei said.
Although the popularity of low-cost PCs has weakened the profits of computer makers, analysts have pointed out that Microsoft benefits because it earns the same royalties for Windows 98 regardless of a computer's price.
"Certainly, some large OEMs [PC makers] had a tough quarter," Maffei said. "But we continue to see good demand among small manufacturers serving small and medium-sized business markets."
More Y2K caution
As has become its habit, Microsoft sounded a cautionary note for the following quarter, continuing to express fears of a possible slowdown in growth because of Year 2000-related issues.
"We remain guarded about growth in 1999, given the likelihood that organizations will lock down their systems infrastructures due to year 2000 concerns," Maffei said.
He added that Microsoft should report fourth-quarter profits of 35 cents a share on revenue of $4.8 billion, while fiscal first-quarter 2000 profits will likely fall "a few pennies" lower sequentially with revenue remaining flat.
Other software firms have warned that Y2K concerns could have a negative effect on their earnings because large corporate customers may be hesitant to upgrade their expensive software systems until they have resolved their Y2K issues.
In a sign that Microsoft's financial health continues to thrive, the company ended the quarter with $21.8 billion in cash, up from $19.2 billion in December. 
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