Microsoft’s Profit Up 23%, Exceeding Analysts’ Forecasts

Microsoft Corp. on Monday reported better-than-expected profit for the latest quarter as strong demand for its Windows operating systems and applications helped fuel record sales.

The computer software giant, based in Redmond, Wash., said earnings rose 23% to a record $614 million, or 95 cents a share, in its fiscal first quarter ended Sept. 30. That is up from $499 million, or 78 cents a share, in the 1995 quarter.

Revenue jumped 14% to $2.3 billion from $2.02 billion.

The profit, announced after the market closed, exceeded the Wall Street consensus expectation of 90 cents a share, and Microsoft shares rose to $136.375 in after-hours trading after losing 75 cents at $134 on Nasdaq earlier.

Microsoft Treasurer Greg Maffei said the 14% revenue increase was the smallest ever posted in the company’s 21-year history, reflecting a surge in sales last year when Microsoft launched its Windows 95 operating system.

But with the high sales, marketing and manufacturing costs of Windows 95 also behind it, the company’s operating profit margin surged to a record 39.3% of revenue, compared with about 35.1% a year earlier, said analyst Scott McAdams of Ragen MacKenzie.

“It looks like it was just a great quarter, and there’s more to come,” he said.

Microsoft executives said in a conference call with analysts that business would continue to be boosted by an expected holiday surge in sales of personal computers and the December release of Office 97, an update to the company’s business applications product.

Mike Brown, Microsoft’s chief financial officer, said he expected revenue to rise sequentially over the next two quarters and indicated revenue for the current quarter could be in the range of $2.4 billion, about 12% above last year’s levels.

But he said the company’s cost of goods sold should remain at about 11% of sales, compared with 15% in last year’s second quarter.

“I’m very happy with the general revenue trend, and I was very pleased with the pattern of costs in the quarter,” Brown told Reuters.

Microsoft also cited strong acceptance of the company’s high-end Windows NT operating system.

Maffei said sales of the NT workstation were up 400% over year-ago levels, while revenue from the BackOffice suite of server products doubled. Executives declined to give figures, but the BackOffice line currently generates about $1 billion in annual revenue.

Microsoft’s overall revenues are about evenly divided between operating systems--most of which are shipped loaded on new computers--and applications.

Excluding sales directly to manufacturers, European revenue was flat in the quarter compared with the year-earlier period, and revenue in the United States and Europe rose 9%, reflecting the tough comparison.

But revenue from other markets such as Japan, where Windows 95 was not released until later, were up 32%, Microsoft said.

Overall last year, Microsoft revenue and profit grew 46%, driven largely by the Windows 95 launch.

Brown also said the company was on track to spend $2.1 billion on research and development in the current fiscal year, including such ventures as its MSNBC cable and Internet news venture with NBC.

And the “unearned revenue” in the company’s balance sheet from cyclical products such as Windows grew to $651 million as of Sept. 30 from $560 million three months earlier.

The company’s cash hoard grew slightly, to $7.1 billion from $6.94 billion.