Microsoft Ends Quarter Up 10% Amid Tepid Sales
Microsoft Corp. said Tuesday that its fiscal fourth-quarter profit rose 10% despite sluggish sales, as profit from its investments helped the software Goliath top Wall Street’s expectations.
The company’s chief financial officer, John Connors, said in a conference call with analysts that the world’s largest software company will probably reduce its use of investment profit in the upcoming fiscal first quarter.
Connors said sales of Windows 2000 should pick up by the end of the July-September period. So far, Microsoft has sold about 3 million copies of the operating system for businesses.
For the three months ended June 30, Microsoft earned $2.41 billion, or 44 cents per share, compared with $2.2 billion, or 40 cents a share, a year earlier. Sales rose 0.7% to $5.8 billion, from $5.76 billion a year ago.
Wall Street analysts were looking for earnings of about 42 cents a share, according to First Call/Thomson Financial. Microsoft shares edged a bit higher in after-hours trading Tuesday after closing at $78.50, up 31 cents, in Nasdaq trading. The results were announced after the market closed.
Half of Microsoft’s fiscal fourth-quarter profit--$1.13 billion--came from gains in its $18-billion investment portfolio, which has money in more than 100 companies.
A year ago, 22% of Microsoft’s fourth-period profit came from its investments.
Fiscal fourth-quarter revenue from Asia was up slightly, as were sales of Microsoft’s operating systems. But the software company posted decreases in Europe and South America and recorded a drop of more than $300 million in sales of its Office software suite and software developer tools.
The company’s consumer and Internet division saw a $200 million improvement in sales from a year ago, which includes the Microsoft Network and several Web sites such as CarPoint and Money.
MSN.com said Monday that 201 million users visited the Web site, making it the No. 1 worldwide Internet destination for the month of June, surpassing rivals AOL.com and Yahoo.
Analysts said the results were largely in line with expectations. Mark Specker, a financial analyst for Soundview Technology Group, said he expected slower sales but the results didn’t turn up any surprises.
“It looks like a pretty good quarter,” Specker said. “They upsided me by 3 cents and the Street by 2 cents.”
The sluggish fiscal fourth-quarter sales were caused in part by the slower adoption of the new operating system by corporations as well as parts shortages hampering small companies known as system builders that put together software packages for smaller businesses.
“We really want to see several months of strong PC business demand before we see the acceleration pick up,” Connors said. “Demand for business PCs was mixed for the quarter.”
Sales of the Windows products, which include Windows 98 and Windows 2000, rose to $2.37 billion in the fourth quarter, from $2.25 billion in the same period last year. The tepid sales growth was led by Windows software for consumers, which continued strong through the quarter, offsetting slower Windows 2000 sales.
The desktop applications group, which produces Office 2000 and server applications, reported a decline in sales to $2.64 billion for the fourth quarter, down from $2.93 billion in the same year-earlier period. Sales of Office 2000 were boosted last year by $200 million worth of coupon redemptions, Connors noted.
Revenue for the consumer division, which includes MSN, hardware and consulting services, grew 34%, to $796 million.
For the year, Microsoft profit rose 20%, to $9.4 billion, or $1.70 a share, from $7.8 billion, or $1.42 a share, a year earlier. Gains from its investments accounted for 35% of that amount, compared with 23% a year ago. Sales for the year rose 16%, to $22.9 billion.
