Microsoft beats the Street

Microsoft tops target

April 19, 2001: 7:00 p.m. ET

Software leader beats estimates by 2 cents per share

NEW YORK (CNNfn) - Microsoft, the world's largest software supplier, reported a fiscal third-quarter profit Thursday that beat forecasts on sales that rose modestly over the same period a year earlier.

After the closing bell, Microsoft said it earned 44 cents per share, during the quarter ended March 31. That's 2 cents better than the 42 cents per share analysts polled by earnings tracker First Call had expected and a penny better than the 43 cents-per-share profit the company reported during the same quarter a year ago.

At $6.46 billion, Microsoft's revenue for the third quarter rose 14 percent over the $5.7 billion in sales the company reported during the same period a year earlier and was well ahead of the $6.1 billion analysts had expected the company to report, according to the First Call survey.

When they reported second-quarter results in January, Microsoft executives told analysts to expect third-quarter sales between $6.3 billion and $6.4 billion and earnings ranging between 42 cents and 43 cents per share.

Looking ahead, John Connors, Microsoft's chief financial officer, said the company expects to log fourth-quarter revenue ranging between $6.3 billion and $6.5 billion and earnings ranging between 41 cents and 42 cents per share.

Analysts had expected Microsoft's profit in the quarter, which ends in June, to be closer to 43 cents per share, and its revenue to be about $6.4 billion.

For the coming fiscal year ending June 30, 2002, Microsoft said it expects earnings per share between $1.90 and $1.94 on sales between $28 billion and $29 billion. The most recent estimate of analysts polled by First Call was for Microsoft to turn a profit of $1.95 on $28.1 billion in sales during fiscal 2002.

Microsoft is the world's No. 1 software supplier and some version of its Windows operating system is installed on the vast majority of the world's desktop computers. The company's "Office" suite of applications, including its Word word-processing program and Excel spreadsheet program, also holds a commanding lead in the market for productivity software.

In a teleconference with analysts Thursday evening, Connors said PC growth in the fiscal third quarter was "quite modest," falling below Microsoft's previous expectations with very weak demand in the U.S.

He said the company anticipates continued sluggishness in the current quarter, which ends in June. But at the same time, Connors said "there are some indications that the PC market could be stabilizing."

Those comments were similar to those made by Intel's chief financial officer after the company, the world's largest supplier of PC microprocessors, reported its latest quarterly results earlier this week. Intel lowered its estimates slightly for the current quarter but said it expects a seasonally strong second half of the year.

Shares of Microsoft (MSFT: Research, Estimates) rose $2.61 to $68.04 on Nasdaq ahead of the earnings news. They rose another $4.23 to $72.27 in extended-hours trade.

The company said Microsoft said revenue from its desktop platforms business, which includes its various Windows operating systems software, rose 16.3 percent to $2.05 billion

Third-quarter sales of desktop applications rose 6.6 percent to $2.41 billion, reversing a trend from previous quarters in which year-over-year revenues declined, the company said.

Moving to .NET
Anticipating that network-based computing will become more pervasive in the future, Microsoft recently has shifted its overall business strategy in an effort to extend its Windows and Office franchises onto the Internet. That strategy, which it is had dubbed "Microsoft .NET," is grounded on a software technology called XML. That stands for Extensible Markup Language, and it allows for the exchange of data across disparate computing devices and software platforms.

Late last month, Microsoft demonstrated the first concrete elements of its .NET strategy when it unveiled array of software aimed at helping consumers manage and share personal information on the Internet. Nicknamed "Hailstorm," the new software provides a set of building-block services designed to link with other companies' software and enable users to access and manage personal data on the Internet using a wide range of software applications and computing devices. It is expected to be available to consumers next year.

Microsoft' MSN Internet service is becoming a testing ground for the company's .NET strategy. Last week, long-time Microsoft veteran Brad Chase stepped down from his post as senior vice president of the MSN group. With its new Hailstorm services, which include instant messaging, and its recent push toward building a larger subscriber base for MSN, Microsoft is emerging as a more direct competitor against AOL Time Warner, the parent company of CNNfn.

The company also is preparing to release the latest version of its desktop operating system, called Windows XP, in the second half of the year.

Last year, Microsoft lost a landmark antitrust case when a federal judge ruled that the company abused its monopoly power in the computer operating system market and ordered it split in two. One company would contain the Windows operating systems business, while the other would contain all the rest, including applications, Internet services and its online travel services subsidiary Expedia (EXPE: Research, Estimates).

Microsoft has appealed that order. In late February, the U.S. Court of Appeals heard two-days of oral arguments in the case. The High Court is expected to hand down its ruling in the late spring or early summer of this year.

Early this month, Microsoft completed its acquisition of Great Plains Software, a supplier of mid-market business applications. The company said it expects to record a charge against fourth-quarter earnings of a penny per share related to that transaction.