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Microsoft results in line
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July 19, 2001: 7:18 p.m. ET
Software maker meets estimates, sees weaker results in slow PC market
By Staff Writer Richard Richtmyer
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NEW YORK (CNNfn) - Microsoft on Thursday reported net income of a penny per share, which is in line with the expectations executives set last week, but executives reined in their growth estimates for the current quarter and the remainder of the year as demand for personal computers remains weak.
After the close of trading, the No. 1 supplier of computer software said it earned $66 million, or a penny per share, for its fiscal fourth quarter ended June 30.
That included $2.6 billion in investment losses and compares with $2.4 billion, or 44 cents per share, during the same quarter last year. At $6.6 billion, Microsoft's fourth-quarter revenue rose 13 percent from $5.8 billion in the same quarter last year.
Last week, Microsoft said it was on track to meet its revenue and operating-profit targets for the quarter, but at the same time said it would record $2.6 billion in investment losses. The penny per share profit includes that loss.
Excluding those losses, Microsoft said its operating income improved to $2.75 billion, compared with $2.6 billion for the same quarter last year. The company did not give corresponding per-share figures in its press release, but a Microsoft spokeswoman said the latest operating results amounted to 43 cents per share, which was in line with the consensus estimate of analysts polled by earnings tracker First Call.
The Street was looking for fiscal fourth-quarter revenue of roughly $6.5 billion, according to the First Call survey.
Shares of Microsoft (MSFT: up $2.00 to $72.57, Research, Estimates) rose $2 to $72.57 on Nasdaq ahead of the news. They fell $3.37 to $69.20 in extended hours trade.
The company's affirmative pre-announcement last week, a rarity in the current market, spurred its shares and elicited positive comments from several analysts who praised the company's performance in an economic climate that has taken its toll on scores of other high-tech firms in recent months.
Microsoft is the dominant supplier of PC operating system software, with its various versions of Windows, and company watchers said they were impressed by the fact that Microsoft was able to grow its business during a quarter that was the worst ever for global PC unit shipments.
During a teleconference with analysts Thursday evening, Microsoft executives acknowledged the softness in the PC market during the most recent quarter, which by their estimates was weaker than the prior quarter.
And looking ahead, they said they expect that weakness to continue in the coming fiscal year.
"We previously said that we thought [fiscal year 2001] PC growth would be in the 7-to-8 percent range, and it seems to come in at the middle of that range," said John Connors, Microsoft's chief financial officer.
"Looking ahead to next fiscal year, we are assuming very soft-to-flat PC demand, although it does vary by region," Connors added. "Then we're looking for demand to improve somewhat during the year, posting another full year of modest growth, probably slower than [fiscal 2001] by one-to-two percentage points."
Win 2K, enterprise sales strong
Connors said Microsoft was able to overcome the overall sluggishness in the PC market with strong sales of corporate products, such as its Windows 2000 operating system, the successor to Windows NT, as well as software used in corporate enterprises.
"We were particularly pleased to see strong adoption of Windows 2000 on the client (desktop computers). And our enterprise segment grew 20 percent, which is a very good result in light of the current economic environment," he said.
Microsoft's desktop platforms division, which includes its Windows operating systems, logged revenue of $2 billion in the fiscal fourth quarter, up 11 percent from $1.8 billion during the same quarter a year ago. Meanwhile, total revenue from Microsoft's enterprise software and services division totaled $1.3 billion, compared with $1.1 billion last year.
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John Connors, CFO, Microsoft | |
Connors also highlighted the company's desktop applications business, through which it derives the bulk of its revenue. Sales from that unit rose 8.7 percent to $2.5 billion from $2.3 billion.
Late in the quarter, Microsoft began shipping its newest version of the "Office" productivity suite, called Office XP, which executives said has been gaining traction with large corporate customers.
However, given the lower expectations for annual PC growth, Microsoft lowered its financial targets for the current quarter and the coming fiscal year. Connors said he expects its fiscal first-quarter operating profit to range between 39 cents and 40 cents per share on sales ranging between $6 billion and $6.2 billion.
Analysts generally had expected the company's fiscal first-quarter profit to be nearer 45 cents per share on revenue of roughly $6.3 billion.
For the full fiscal year ending in June, Connors said Microsoft is aiming for a profit ranging between $1.91 and $1.95 per share on revenue between $28.8 billion and $29.5 billion.
The Street had generally been expecting a fiscal-year profit of $1.94 per share on $28.8 billion in sales.
Microsoft's lower forecast for the coming year underscores the need for it to succeed with some of the new products it has in the pipeline, including Windows XP, its new consumer operating systems due out in October, as well as its xBox video-game console, set to hit store shelves in November.
Windows XP has been designed with more emphasis on Internet and multimedia features, which have been integrated throughout the various elements of the operating system. The xBox, which will carry a suggested retail price of $299, represents Microsoft's first foray into the video-game console market.
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Click here from CNNfn.com's special report: Microsoft on trial | |
But most of the attention on Microsoft lately has been regarding its ongoing antitrust case.
On June 28, the U.S. Court of Appeals for the District of Columbia overturned a lower court's ruling that Microsoft be broken into two companies as a remedy for anti-competitive practices and remanded other parts of the judge's decision back to the lower court for consideration by a different judge.
Under the current schedule, the case will be returned to the U.S. District Court in Washington in mid-August. The U.S. Justice Department, which in conjunction with 19 states brought the suit against Microsoft in 1997, has asked the appeals court to expedite that mandate.
Some of the states involved have said they are concerned about Microsoft's current product plans with Windows XP, saying that it demonstrates continued anti-competitive practices because it integrates functions such as instant messaging and Internet authentication services.
Microsoft has expressed a clear desire to settle the case, already resolving the matter with New Mexico, one of the 19 states involved. But at the same time the company has asked the appeals court for a rehearing on a key finding in the case – that it commingled Web browsing code with its Windows operating systems – leading some experts to believe it is poised to request a Supreme Court to review of appeals court's decision.
The Justice Department and all the states involved have said they do not intend to seek a Supreme Court review. 
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