Earnings: Microsoft credits Windows 2000 for gains

Microsoft Corp. credited sales of Windows 2000 Professional and a reorganization of its sales force for helping the software vendor turn in a 14 percent increase in revenue and a 3 percent profit gain during its fiscal third quarter -- results that were slightly above expectations after Microsoft was forced to lower its projections one quarter earlier.

During a conference call yesterday afternoon, many financial analysts openly congratulated Microsoft for its performance in the quarter ended March 31. The company reported net income of US$2.45 billion on revenue of $6.46 billion, up from a respective $2.39 billion and $5.66 billion in last year's third quarter.

"We are pleased with the March quarter results," said John Connors, Microsoft's chief financial officer. "It is particularly gratifying to see the continued momentum for the Windows 2000 business." In its announcement, Microsoft said Windows 2000 Professional showed particular strength, accounting for 35 percent of all the 32-bit operating systems it shipped.

But not everything was so upbeat. Microsoft lowered its general expectations for PC sales next year, cutting earlier predictions of a 10 percent increase in shipments during 2002 to about 7 percent or 8 percent.

"Given where the March quarter came out and where the U.S. economy is today, it probably wouldn't be prudent to forecast growth rates higher than we see right now," Connors said. "We think worldwide PC growth in the March quarter was quite modest, with very weak demand in the U.S."

But Connors noted that he expects Microsoft to continue doing relatively well as long as economic conditions don't soften more than they have. The company's business forecast, calling for fourth-quarter revenue of $6.3 billion to $6.5 billion, "is based on an economy that doesn't necessarily improve rapidly but that does not continue to deteriorate," he said.

Connors predicted "decent growth rates" for Microsoft's services business, and he also credited a reorganization of the company's sales organization as a big reason for its financial performance. The changes in the sales force are helping Microsoft win "a lot more business that would have gone to the Sun/Oracle platform a year ago," he claimed.

Other bright spots in the third quarter were Microsoft's overall sales in Asia and North America. Connors said the company did see a slight business decline in Europe, but he blamed that on the weakness of the euro and said sales in that region would have increased 7 percent year-to-year if measurements were made at constant-currency rates.

Numerous other technology companies also released their latest financial results, including the following ones:

Sun Microsystems Inc. yesterday reported that its fiscal third-quarter net income fell from $464 million last year to $263 million on a pro-forma basis, although that was slightly above the expectations it had set for the three months ended April 1. Third-quarter revenue totaled $4.1 billion, up 2 percent from the year-earlier level of $4.01 billion. Michael Lehman, Sun's chief financial officer, said the results stemmed from "a sharp decline" in overall IT spending and added that the company will make "the appropriate trade-offs in order to align our cost structure with our revenue growth expectations."

Struggling PC maker Gateway Inc. posted a net first-quarter loss of $502.9 million on revenue of $2.03 billion, down from sales of $2.4 billion during the same period a year ago. The loss included $533 million worth of one-time charges taken to pay for layoffs that were announced earlier this year and for technology, asset and loan portfolio write-downs. Ted Waitt, Gateway's chairman and CEO, said the San Diego-based company is trying "to get our business in fighting form for the second half" of the year.

Silicon Graphics Inc. today disclosed a net loss of $141.1 million for its fiscal third quarter and said it plans to lay off about 1,000 workers in a cutback move that will lower the Mountain View, Calif.-based computer maker's workforce by 15 percent. Bob Bishop, SGI's chairman and CEO, said the layoffs should help the company get back to break-even performance at current revenue levels once its next fiscal year begins in July. Third-quarter revenue amounted to $509.7 million, down from the year-earlier total of $563.7 million.

Business-to-business software vendors Ariba Inc. and Commerce One Inc. reported results in line with reduced-expectations warnings that they both issued two weeks ago. Mountain View-based Ariba today said its fiscal second quarter resulted in a $48.3 million pro-forma loss and a $1.84 billlion net deficit on revenue of $90.7 million. Commerce One, in Pleasanton, Calif., yesterday revealed an operating loss of $25.5 million and a net deficit of $228.5 million for the first quarter, with revenue totaling $170.3 million.

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