Microsoft Profit Tops Forecasts, but Revenue Doesn’t
Microsoft Corp. on Thursday reported fiscal third-quarter profit that beat analysts’ expectations, but also posted lower-than-expected revenue because of slower sales of PC to businesses, a trend that is likely to continue into early summer.
Microsoft shares inched up 25 cents to $78.94 in regular Nasdaq trading but fell to $75.75 in after-hours activity. The results were announced after the market closed.
John Connors, Microsoft’s chief financial officer, said that he expected sales to remain weak heading into June, and that fourth-quarter revenue would be about the same as last year’s $5.76 billion.
He also said revenue growth would fall dramatically to the mid-teens from the mid-20% range in its 2001 fiscal year, which begins in July. He blamed the downward revision on uncertainty over whether PC demand will pick up and the slow adoption rate of Windows 2000 and an array of server software products.
For the three months ended March 31, the Redmond, Wash.-based software giant said, net income rose 23% to $2.39 billion, or 43 cents a share, from $1.91 billion, or 35 cents, in the year-earlier period. That exceeded the consensus estimate of 41 cents as tabulated by First Call/Thomson Financial.
Nearly 40% of the company’s profit--$885 million--came from gains in its substantial investment portfolio. Connors said Microsoft will post even larger investment gains in the fourth quarter.
Revenue increased 23% to $5.66 billion from $4.6 billion last year. That was below estimates that ranged as high as $5.95 billion, reflecting slower corporate purchases in January and February.
Analysts said they were disappointed, but not surprised, by weaker revenue and profit margins than they expected.
“The quarter was a little weaker than I had hoped, and the future outlook is a little weaker than I was hoping for,” said Brian Goodstadt, an analyst for S&P; Equity Group.
The company said retail demand for its new Windows 2000 Professional desktop operating system was stronger than expected.
Revenue from Office 2000 was up 32% from the year-earlier period. The Asian market continued its recovery, with revenue up 44% to $709 million.
Connors said Microsoft’s MSN network continued to experience significant growth in the quarter as revenue grew to $756 million from $598 million in the year-earlier period.
Microsoft’s cash reserves grew to $21.2 billion from $17.8 billion three months earlier.
The company continues to operate under the cloud of the long-running antitrust feud with the federal government, a battle that Microsoft so far is losing. Last month, a federal judge ruled that the world’s largest software company illegally tried to extend its monopoly from the PC operating system into the browser market.
“The overwhelming thing affecting the stock is the trial,” said Bill Epifanio, a financial analyst for J.P. Morgan. “Everything is so secondary and really pales in comparison.”
But investors remain concerned about the company’s growth prospects. Last week, Goldman Sachs analyst Rick Sherlund lowered his estimate for Microsoft’s quarterly revenue by $200 million.
