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Microsoft's earnings beat expectations (1999)

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San Francisco (April 20, 1999) -- Microsoft Corp. today credited strong sales of Windows NT Workstation, Office, Exchange Server and SQL Server for helping to boost the company's third-quarter earnings to $1.92 billion, or 35 cents per share, 3 cents higher than expectations and 40 percent higher than a year ago.

Revenue for the quarter that ended March 31, 1999, totaled $4.33 billion, a 15 percent increase over the $3.77 billion for the third quarter a year ago. A year ago, third-quarter earnings were $1.34 billion, or 25 cents per share.

A median of 22 analysts polled by First Call Corp. predicted Microsoft would report third-quarter earnings per share of 32 cents.

The current and prior share amounts reflect a two-for-one stock split the company conducted last month.

In addition to the strong product sales, the company's results in Asia were "much improved," said Greg Maffei, chief financial officer, said in a statement. The company benefited from investment gains of more than $350 million during the quarter.

In the product groups, platforms product revenue grew 26 percent to $2.05 billion; applications and tools product revenue grew 4 percent to $1.94 billion; and interactive media and other revenue was up 22 percent to $341 million.

Third-quarter revenue from PC manufacturers, the primary distribution method for Microsoft software, was $1.59 billion, a 29 percent increase over the same period a year ago. This was due, in large part, to an increase in the numbers of PCs shipped, as well as increased penetration of Microsoft's Windows NT Workstation operating system, company executives said in a conference call.

Geographically, overall revenue in the South Pacific and Americas grew 6 percent to $1.33 billion, while specific revenue growth was moderate in the U.S. and flat in Latin America and the South Pacific.

For the quarter in Europe, the Middle East and Africa, revenue was up 4 percent to $932 million. Revenue growth was solid in France and Germany, and was particularly good in the U.K., Sweden, the Netherlands and the Middle East, Microsoft said.

In Asia, revenue increased 22 percent to $475 million. Desktop applications, as well as PCs, had strong sales, particularly in Japan. China, India and Southeast Asia had "superb" growth, Maffei said.

Meanwhile, research and development expenses increased 2 percent to $611 million; sales and marketing expenses were $996 million; and general and administrative costs were $144 million, up $40 million from last year partly because of higher legal costs, executives said. Microsoft is presently involved in separate ongoing legal battles with the U.S. Department of Justice and Sun Microsystems Inc.

Cash and short-term investments totaled $21.76 billion and third-quarter investment income increased to $720 million.

Meanwhile, Maffei said company executives remain guarded about growth in 1999 as a whole, echoing statements made practically every quarter, given the likelihood that organizations will "lock down their systems infrastructures" due to year 2000 concerns.

"Some large organizations are already delaying projects when you look at the relatively slow growth rate of NT Server and Office," in the U.S., Maffei said. However, many smaller organizations are continuing to buy PCs, he said.

Meanwhile, Microsoft expects to see $400 million from Office 97 and other customers who are eligible for a free upgrade to Office 2000 when the new version of the desktop applications suite becomes generally available, Maffei said. Microsoft released the English-language version of Office 2000 to manufacturing in March and is shipping it to volume license customers this month. It will be widely available in U.S. stores on June 10.

Microsoft was up 2.12 points to $83.12 on the Nasdaq stock exchange today.