|
Microsoft posts strong 2Q
|
 |
January 18, 2000: 8:39 p.m. ET
Executives credit strong sales in Asia, warn of slowing profit growth
By Staff Writer Richard Richtmyer
|
NEW YORK (CNNfn) - Microsoft Corp. on Tuesday reported a fiscal second-quarter profit well ahead of Wall Street's expectations amid stronger demand for its Office software products, especially in Asia. The company also argued in its antitrust case Tuesday that its actions were lawful and that it lacked monopoly power.
Beating the Street
Executives at the Redmond, Wash.-based software giant noted that growth in sales of the company's core Windows operating-system products were slower during the quarter, and they were cautious in their outlook for the remainder of the year.
"It seems likely we will report year-over-year revenue in the 25 percent range, but I would expect earnings-per-share to grow at a lower rate than revenue in the next two quarters," John Connors, Microsoft's newly appointed chief financial officer, said in a conference call Tuesday evening.
Before one-time items, Microsoft earned 47 cents per diluted share during the most recent quarter, up from 36 cents per share during the same period last year.
Analysts polled by earnings tracker First Call had expected Microsoft to post operating earnings of 42 cents per share during the quarter.
Including a one-time charge related to the settlement of a lawsuit with Caldera Inc., Microsoft (MSFT) posted net income of $2.4 billion, or 44 cents per diluted share.
For the first six months of its fiscal year, which runs from July 1 through June 30, Microsoft reported net income of $4.6 billion, or 84 cents per diluted share, on revenue that rose 22.5 percent to $11.5 billion.
Windows sales sluggish, Office soars
The quarter's results were lifted by strong sales of products in Microsoft's Productivity and Applications and Developer division, including its Office 2000 suite of business software and SQL Server 7.0 database, which increased 28 percent from the year earlier, Microsoft said.
At the same time, sales of its Windows operating systems grew only 6 percent, which executives attributed to corporate customers awaiting the release of Windows 2000, expected on Feb. 17.
"Demand for our Windows NT server and workstation products has slackened somewhat as we approach the launch of Windows 2000," said Jerry Masters, Microsoft's senior director of planning and reporting.
But Connors pointed out that last year's fiscal second quarter was lifted by the introduction of the Windows 98 operating system. He said he expects sales of Windows to pick up in the remainder of the year, complemented by strong demand for PCs.
"We are optimistic for the outlook of PC growth in the upcoming quarters and are particularly enthused about the release of Windows 2000," Connors said.
Analysts had been anticipating a strong showing for Microsoft, with expectations getting a lift late last week after semiconductor maker Intel (INTC) posted better-than-expected quarterly results and provided an outlook for 2000 that indicates a continued robust demand for personal computers.
The vast majority of the world's PCs consist of some version of Microsoft's Windows operating system running on an Intel or Intel-compatible microprocessor, a configuration commonly referred to as "Wintel."
Stock could slip in near term
"The revenue mix shifted a little bit, but overall it was a solid quarter," said William Epiphano, an analyst at J.P. Morgan Securities.
Looking ahead, Epiphano said he expects Microsoft to continue to be a strong performer, with momentum building toward the end of its fiscal year.
"I think Windows 2000 is going to have an enormous upside, but it's going to take a little while to kick in," he said. "From the fourth quarter of fiscal 2000 on, I'm expecting terrific things out of Microsoft. The Y2K hangover will be over with, and they're going to be looking at very strong product cycles for Windows 2000, Office 2000 as well as a lot of the other products that they sell."
But in the near-term, shares of Microsoft, which have risen more than 30 percent over the past three months, could be knocked down a few pegs by Connors' cautious tone, Epiphano said.
"I wouldn't be surprised if the market put the stock under some pressure over concerns about the guarded guidance," he said. "So I would say `Buy on the weakness, and get ready for what will certainly be a very exciting fourth quarter."
Click here for an after-hours quote
Shares of Microsoft ticked up 3-1/16 to 115-5/16 in regular Nasdaq activity Tuesday. In extended hours trade, the stock slid 2-9/16 to 112-3/4.
Antitrust case presses on
Tuesday's earnings news came on the same day that the company officially responded to the harsh ruling handed down by the judge presiding over the U.S. Justice Department's antitrust case against Microsoft.
The company's remarks came in its "conclusions of law" brief in response to U.S. District Judge Thomas Penfield Jackson's findings of fact, which he handed down in November.
Jackson has ruled that Microsoft possesses monopoly power in the market for PC operating systems and harmed consumers through its anti-competitive behavior.
In its filing, Microsoft said that it "respectfully disagrees with many of the Court's findings of fact" and adds that "even accepting the court's findings of fact, plaintiffs still have not satisfied their burden under the governing law on any of their claims."
The company said that Jackson's conclusion that Microsoft has monopoly power in the market for PC operating systems "does not account for many of the most serious competitive threats faced by Microsoft's operating systems."
Further, Microsoft cites numerous legal precedents that it says refutes the government's claims that Microsoft attempted to monopolize the market for Internet browsers. The company's bundling of its Internet Explorer Web browser with its Windows operating systems was the linchpin of the government's case.
Microsoft has taken a firm stance against the government, which last week proposed splitting the company up as a remedy for its allegedly anti-competitive behavior, a move that Microsoft executives involved in negotiations with Justice Department prosecutors have fervently renounced.
A Justice Department antitrust lawyer on Tuesday said Microsoft's argument "would give a monopoly virtually unlimited power to use its position to crush competition, harm consumers and stifle innovation. Its brief ignores the court's findings of fact and distorts key legal precedents."
The government is expected to file a rebuttal to Microsoft's proposed conclusions of law later this month, and a final ruling by Jackson is expected in March. 
|
|
|
|
|
 |
|
