Microsoft Revenues, Earnings Up 23 Percent

FRAMINGHAM (04/21/2000) - Microsoft Corp. yesterday reported that both its revenue and net income rose 23 percent in the third quarter, mostly fueled by surprising retail sales of Windows 2000 and a continued strong performance from its Office productivity suite.

The company's profit beat Wall Street estimates by 2 cents, coming in with diluted earnings of 43 cents per share on $2.39 billion in net income.

Microsoft also reported $5.66 billion in revenue for the quarter that ended March 31. The revenue is up from $4.6 billion for the same quarter last year.

"We were a little surprised by the retail sales of Windows 2000, given that it was directed at corporate users," says John Connors, chief financial officer for Microsoft. Connors said the growth was also surprising because Windows 2000 was only available for part of the quarter. Microsoft said sales on the corporate side were tempered by the fact that many large corporations are still in the evaluation stage with Windows 2000, but Microsoft is expecting a slow and steady ramp-up. The company said it shipped nearly 1.5 million copies of Windows 2000 since its launch on Feb. 17.

Connors said the revenue gains were offset by slower growth from Windows operating systems sold through OEMs.

Microsoft also reported less-than-expected growth in its Windows Platform division, which includes Windows 2000 and Windows NT. Revenue grew to $2.31 billion, up 14 percent over the same quarter last year. Connors blamed the lagging growth on limited demand for new business PCs in the quarter.

Microsoft's Productivity Applications and Developer division, which includes Office, server applications such as Exchange and SQL, and software development tools, reported a 32 percent increase in revenue to $2.59 billion. The consumer division, including online services, PC input devices and learning and entertainment software was up 26 percent to $756 million over last year.

Microsoft also reported that research and development costs were up 49 percent from a year ago to $990 million, due to an increase in staff and investments in new product initiatives.

The company reported $885 million in investment income and a total of $21 billion in cash.

Microsoft stock priced closed Thursday at $78.9375, up 25 cents. Analysts said Microsoft must show much higher quarterly revenue gains to force a rebound of the stock, which was trading near $110 less than a month ago.

The stock price has taken a beating since the antitrust ruling against Microsoft earlier this month.

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