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Oct. 19, 2000 | SEATTLE -- Microsoft's stock jumped 19 percent Thursday after the company's quarterly profit report beat expectations, though the bulk of the software maker's profit increase came from investments, not its products.
For the three months ended Sept. 30, Microsoft earned $2.21 billion, or 40 cents per share, up from $2.19 billion, or 40 cents per share, in the year-ago period.
The net results include an accounting charge of 6 cents per share; excluding the charge, Microsoft's operating profits rose 18 percent to $2.58 billion, or 46 cents per share.
However, most of the company's profit increase came from a $557 million gain on the company's investment portfolio, and not from actual operations. Profits from operations actually fell by $12 million in the quarter.
"Obviously they've invested well, but it's trouble for any company when you're not making your money from your own operations," said Kurt Schlegel, an industry analyst with the New York-based META Group.
The results, released Wednesday after the close of regular trading, surpassed expectations of Wall Street analysts surveyed by First Call/Thomson Financial, who were predicting 41 cents per share. Microsoft's stock closed Thursday up $10.13 at $61.88 on the Nasdaq composite index.
Revenue rose to $5.80 billion from $5.38 billion in the year-ago period.
Microsoft chief financial officer John Connors, who has defended the company's investment income in the past, noted that Microsoft nevertheless beat Wall Street estimates for its operating profits, despite the lackluster performance.
Connors credited rapid adoption of Microsoft's new Windows Millennium Edition operating system for home computers, along with strong preliminary sales of Windows 2000 for servers, the large computers used in business networks and Internet commerce.
Sales of Microsoft Office continued to fall below last year's mark, when Office 2000 was first introduced. A new version of Office is due next year.
Connors said the bump in investment income was due to gains from the sale of online check approval company Transpoint, in which Microsoft held a stake, to Checkforce, as well additional income related to the sale of the Sidewalk local city guide Web sites to Ticketmaster/CitySearch.
Though Wall Street has been hard on tech stocks due to slower-than-expected growth in personal computer sales, Connors said sales of PCs came in at about what Microsoft expected.
Others weren't convinced by the results.
"I don't know if we should take the numbers here at face value," said Rick Sherlund, financial analyst with Goldman, Sachs & Co. "There are some areas that could be a lot healthier."
For example, Sherlund pointed to a $50 million loss in deferred revenues. These are gains or, in this case, losses based on continuing sales -- such as subscriptions -- that will be put off to future quarters.
Software subscriptions, where users pay monthly fees in exchange for continuously updated software via the Internet, are the keystone of Microsoft.NET, the company's new strategy designed to turn its software into Net-based services.
This could prove rocky for the company, analysts said, as evidenced by the lack of deferred revenues as well as increased marketing and operations costs on its current CD-ROM software and systems.
"Microsoft's problem is that they're currently basing their revenues on this big-bang upgrade model, and they keep having to beat the drum louder and louder to get people to buy these upgrades," Schlegel said. "They have to get to a subscription model quickly, but they also have to make money in the meantime." |
