Microsoft Gains 6% on News It Meets Profit Estimates
Microsoft Corp. said Thursday that it met lower fiscal second-quarter sales and earnings forecasts and remained on track to meet annual results despite a slight profit dip in the upcoming quarter.
Battle-weary tech investors cheered the news, bidding up shares in the Redmond, Wash., software giant by as much as 6% in after-hours trading. Microsoft shares gained 4.8%, or $2.56, to $55.50 in regular Nasdaq trading. In after-hours trading, the shares rose as high as $58.80.
“In a sense, the stock has developed a bit of resistance to bad news, so this announcement was actually met with a bit of relief,” said Rick G. Sherlund, analyst with Goldman Sachs in New York.
After the markets closed, Microsoft reported earnings of $2.6 billion, or 47 cents a share, on an 8% gain in revenue to $6.6 billion for the three months ended Dec. 31. Profit rose 8% from $2.4 billion in the same period a year ago. Before the company cut its estimates Dec. 14, analysts expected second-quarter profit of 49 cents a share on sales of $6.8 billion, according to First Call/Thomson Financial.
John Connors, Microsoft’s chief financial officer, said fiscal third-quarter profit probably would come in a penny less than the 43-to-44-cents-a-share consensus estimate by First Call. But he said the company expects to meet full-year results of $1.80 to $1.82 a share.
The earnings report comes amid a dirge of disappointing earnings releases in recent weeks by technology companies whose fortunes depend on the market for personal computers. Although Microsoft has been attempting to expand into non-PC markets, it continues to get two-thirds of its revenue from selling PC software.
For now, the outlook for the PC industry continues to look bleak. Growth in PC sales for 2000 is forecast at just 12.1%, about half of the rate of growth in 1999, according to a December report by IDC, a technology market research firm. For 2001, IDC forecast a 15.5% growth in PC sales. But that figure is likely to be lowered further next week when IDC releases revised numbers, said Anne Bui, senior analyst with IDC.
“These figures did not take into account the dramatic slowdown in the key month of December,” Bui said.
The negative outlook for the PC industry didn’t faze Microsoft investors, who felt much of the company’s weaknesses already have been disclosed.
“Microsoft has had a lot of bad news over the past year, but the stock has done quite well year-to-date,” Sherlund said. “Investors are inclined to think all the bad news is already out.”
Indeed, Microsoft shares are up 27% this year, making it the second-best performer in the 30-member Dow Jones Industrial Average after AT&T; Corp. But Microsoft is trading at less than half its price of a year ago.
In December, Connors attributed the company’s diminished fortunes to worldwide economic weakness, slower PC sales, slower spending by corporations on computers and software, lower advertising revenue from its Web sites and continuing losses from its MSN online business.
He reiterated those concerns Thursday.
“We remain guarded about the near-term economic outlook,” he said.
At a Glance
Other technology sector earnings, excluding one-time gains or charges unless noted:
* BMC Software Inc. said profit fell 44% in its fiscal third quarter to $58.8 million, or 24 cents a share, exceeding upwardly revised forecasts by 3 cents. The latest figures exclude special charges but include a one-time gain of 2 cents from a real estate sale. Analysts were expecting 19 cents without the gain. Forecasts were 16 cents before BMC gave a brighter outlook Jan. 3. Revenue declined 9% to $385.5 million but was up from $62.5 million in the second quarter.
* Commerce One Inc.’s operating loss narrowed to $10.8 million, or 5 cents a share, from $14.7 million, or 9 cents, better than the 7-cent loss analysts expected. Revenue soared to $191.4 million from $16.9 million.
* Conexant Systems Inc., a maker of communications chips, reported an operating loss of $17.2 million, or 7 cents a share, for its fiscal first quarter, contrasted with a profit of $53.3 million, or 24 cents, a year ago. The company had twice reduced targets for the quarter because of slowing sales, citing weakening demand for personal computers. Revenue fell 20% to $410.4 million. The company also postponed plans to sell stock in its Internet-chip business to the public.
* EBay Inc. beat Wall Street expectations as fourth-quarter profit soared to $23.9 million, or 9 cents per share, compared with $3.8 million, or 1 cent, in the year-ago quarter. Revenue rose 81% to $134 million. Analysts surveyed by First Call/Thomson Financial were expecting 7 cents.
* Emulex Corp. said operating profit climbed to $18.2 million, or 23 cents a share, from net $8.77 million, or 11 cents, as revenue surged to $71.1 million from $33.6 million. Analysts were expecting 18 cents. The company also boosted its forecasts for the third quarter and fiscal year.
* Inktomi Corp. said it earned $1 million, or a penny a share, a turnaround from a loss of $4 million, or 4 cents, a year ago, as revenue climbed to $80.5 million from $36.1 million. The results met analyst forecasts. Inktomi, a maker of software to speed delivery of Internet content, also said it agreed to sell its money-losing unit that makes online-shopping programs to E-Centives Inc. for about $27 million in stock.
* Sun Microsystems Inc.’s fiscal second-quarter net income rose 19% to $423 million, or 12 cents a share, matching Wall Street forecasts. Sales rose 44% to $5.12 billion as customers bought more of the company’s server computers that power corporate networks and Internet traffic.
* Unisys Corp.’s fourth-quarter earnings fell 11% to $128.6 million, or 41 cents a share, in line with forecasts. The company said it expects continued weakness throughout 2001 because a slowing economy is forcing customers to be more cautious in their information technology spending. Revenue declined 1.6% to $1.93 billion.
