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News > Technology
MSFT outlook downbeat
April 20, 2000: 7:56 p.m. ET

World's leading software maker is guarded about its future growth
By Staff Writer David Kleinbard
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NEW YORK (CNNfn) - Microsoft Corp., already embattled in an antitrust case with the federal government and 19 states, now also faces sluggish revenue growth because of slow sales of corporate PCs and a transition to new software products.
    After the market close Thursday, Microsoft reported third-quarter earnings that exceeded analysts' estimates, but the software giant warned that it is "guarded about near-term growth," and its revenue was lower than most analysts had expected. The company's chief financial officer advised securities analysts to lower their revenue and earnings expectations for the next fiscal year.
    After the market closed Thursday, Microsoft reported that its third-quarter net income rose 23 percent to $2.39 billion, or 43 cents per share, from $1.92 billion, or 35 cents per share, in the same period last year. The mean analyst's earnings expectation for Microsoft was 41 cents, according to First Call.
    Revenue in the three months ended in March rose 23 percent to $5.66 billion from $4.6 billion, as the company exceeded 1.5 million shipments of its new Windows 2000 operating system, which is aimed at corporate users. Windows 2000 was launched in mid-February.
    "OEM revenue was light as demand for business PCs remained slow in the quarter, and we remain guarded about near-term growth," said John Connors, Microsoft's chief financial officer. "However, PC demand appeared to pick up late in the quarter, and with the launch of Windows 2000, we are excited about the opportunity to help customers migrate to this new generation of platform products."
    In a conference call after the earnings release, Connors forecast that the company's revenue will be about $100 million higher in the fourth quarter than it was in the third. That would place Microsoft's fourth-quarter revenue at $5.76 billion, flat with the fourth quarter of fiscal 1999. In addition, he forecast that Microsoft's fourth-quarter earnings per share will total 41 cents, two cents lower than the current mean analyst expectation.
    "We are cautious about the next quarter," Connors said. "We want to see business PC demand pick up, and the next quarter is a tough comparable quarter because of last year's launch of Office 2000."
    Connors forecast that the software giant's revenue will increase at a "mid-teens" rate in fiscal 2001, slower than the 18 percent-to-20 percent rate that most analysts were expecting. He advised analysts to lower their earnings per share forecast for fiscal 2001 to $1.88 from the current consensus estimate of $1.93.
    The sheer size and dominant market share of Microsoft's operating system and business applications units are making it difficult for the company to grow at double-digit rates.
    "Getting multi-digit growth in our two main franchises with the share and size we have is tough, but we will have great growth in our businesses that are somewhat smaller," Connors said.
    graphicIn this year's third quarter, Microsoft's revenue from its Windows operating systems - which include Windows 98, Windows 2000, and Windows NT - rose 14 percent to $2.31 billion. Stronger-than-expected retail sales of its newest desktop operating system, Windows 2000 Professional, helped offset slow sales of Windows operating systems to computer makers. The company's average revenue per licensed operating system declined in the third quarter.
    Revenue from the company's office applications and developer tools - including Microsoft Office, Exchange Server and SQL Server - rose 32 percent from last year's third quarter to $2.59 billion in the March quarter. Microsoft said that sales of its Office software suite were "healthy."
    Microsoft's revenue from consumer software and other services - such as consulting, training, and Internet access - rose 26 percent to $756 million. The company now has 2.5 million Internet access subscribers through the Microsoft Network, about one-tenth the number of subscribers America Online has.
    "Online revenue growth was very healthy, but was offset somewhat by the company's lower net prices for Internet access subscriptions compared to the prior year," Microsoft said in its earnings release.
    Microsoft's investment income rose to $885 million in the third quarter from $720 million in the same period last year. It ended the quarter with a massive $21.2 billion in cash and $21.3 billion in investments.
    Prior to the news, Microsoft (MSFT: Research, Estimates) shares closed at 78-15/16, up 1/4. In after-hours trading, the stock declined 2-15/16 to 76. The company's shares are down about 32 percent so far this year. Back to top

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.