Microsoft Beats Profit Estimates for Quarter on Strong Sales of PCs
Buoyed by strong sales of personal computers around the world, software giant Microsoft Corp. posted quarterly earnings of 38 cents a share, beating analysts’ estimates of 34 cents.
The Redmond, Wash.-based company announced after the stock market closed on Tuesday that it had net income of $2.19 billion for the quarter ended Sept. 30 on revenue of $5.38 billion, a 28% increase over the $4.19 billion for the same quarter last year.
The company’s profit represented a 30% increase over the $1.68 billion it made in the same quarter last year.
The performance pleased analysts. But they noted that Microsoft perennially beats analysts’ predictions, in part by downplaying performance in public statements in the weeks leading up to earnings announcements.
“This is a great quarter for them,” said Michael West, president of MWest.com, a research and analysis firm in Santa Cruz. “But you have to remember that they always tell people that it isn’t going to be a great quarter, then they beat all the estimates.”
West added that the future also looks good for Microsoft with its much-delayed Windows 2000--which will replace the Windows 98 operating system software that now comes loaded on the vast majority of PCs--waiting in the wings.
The company said Tuesday that Windows 2000 could begin shipping by the end of the year.
Microsoft shares closed at $86.31, down $1.56, but its stock surged to $88.75 in after-hours trading after the results were reported.
Greg Maffei, the company’s chief financial officer, said that concerns associated with possible Y2K problems had no significant impact on Microsoft’s results.
“We also saw excellent PC unit growth, particularly in Asia, and we expect that trend to continue in the December quarter,” Maffei said in a prepared statement.
Maffei said that Microsoft’s earnings were driven largely by the success of the company’s corporate products, including Office 2000, Windows NT Server and BackOffice applications.
He added that some large companies might be hesitant to upgrade their computers around the new year because of potential year 2000 problems. But Microsoft expects a rush to upgrade shortly after the first of the year, creating a big boost for future quarters.
Chris Galvin, an analyst with San Francisco-based investment bank Hambrecht & Quist, was encouraged by Microsoft’s optimism that Y2K would not dampen sales, predicting that it could lift confidence in the broader computer industry.
However, the company’s future prospects remain clouded by the federal antitrust action still unfolding in Washington.
The U.S. District Court released a cryptic announcement Tuesday saying that a decision in the case would be made on “a Friday evening at 6:30,” prompting speculation that the decision could come as early as this week.
Microsoft made little mention of its Internet businesses Tuesday, although it did make a promising announcement the day before--a joint venture with Telmex, Mexico’s largest telecommunications company, to create a portal site for Spanish-speaking Internet users.
The portal will offer Spanish speakers many of the same services available on Microsoft’s MSN online service, including e-mail, Web searching and instant messaging.
West said the idea of a Spanish-language portal is good, but the question is whether Microsoft can pull it off.
“Microsoft hasn’t even done well with its own portal,” he said. “Why should they do any better in Mexico?”
At a Glance
Other earnings, excluding one-time gains and charges unless noted:
* Cadence Design Systems Inc., a maker of chip-design software,, reported a third-quarter net loss of $17.4 million, or 7 cents a share, contrasted with a profit of $67 million, or 26 cents a share, a year ago, matching estimates. Revenue slipped 32% to $225.9 million from $334.2 million.
* Computer Associates International Inc. said its fiscal second-quarter profit rose 14% to $334.5 million, or 60 cents a share, from $293.9 million, or 52 cents, a year earlier, a penny better than analysts had forecast, as revenue jumped 32% to $1.6 billion.
* High-speed Internet access provider Excite@Home Corp. said its third-quarter loss widened, matching expectations, to $498.6 million, or $1.37 a share, from $23.3 million, or 10 cents, a year earlier. Excluding expenses for amortization of goodwill, it had a pro forma net operating loss of $4.2 million, or 1 cent, compared with a pro forma net operating loss of $7.9 million, or 2 cents, a year ago. Analysts expected a 1-cent loss. Revenue rose to $112.6 million from $57.8 million.
* Business-management software maker PeopleSoft Inc. said third-quarter profit fell to $5.2 million, or 2 cents a share, from $44.2 million, or 17 cents, a year earlier, in line with estimates of 1 cent. Revenue dropped to $303 million from $351 million.
* RealNetworks Inc., the No. 1 maker of software used to play online music and video, posted net income of $3 million, or 3 cents a share, a turnaround from a loss of $2.5 million, or 4 cents, a year earlier. The results missed consensus estimates by a penny. Revenue nearly doubled to $34.9 million from $17.7 million.
* Texas Instruments Inc., the world’s biggest maker of computer chips for cellular phones, said earnings more than doubled for the second straight quarter on demand for its chips used in communications. Third-quarter profit from operations rose to $337 million, or 42 cents a share, from $164 million, or 21 cents, a year earlier. Revenue rose 13% to $2.39 billion.
