Microsoft 3rd-Qtr Net Rises; Revenue Lags Estimates
Redmond, Washington, April 20 (Bloomberg) -- Microsoft Corp., the world's largest software maker, said fiscal third-quarter profit rose 24 percent though revenue rose less than forecast as sales to businesses slowed, sending its shares lower.
Net income rose to $2.39 billion, or 43 cents a share, in the quarter ended March 31, from $1.92 billion, or 35 cents, a year earlier. Microsoft was expected to earn 41 cents a share, the average estimate of analysts polled by First Call/Thomson Financial. So-called whisper estimates were as high as 45 cents. Revenue rose to $5.66 billion from $4.6 billion a year ago.
Microsoft's revenue missed analysts' estimates of as much as $5.95 billion as corporations slowed their purchases of personal computers in January and February. Microsoft's Windows operating system software runs 95 percent of the world's PCs.
``The revenue was disappointing, so I'd expect we'll see a little downturn in the stock,' said Larry Seibert, a fund manager with Barrett Associates, which owns $1.2 million shares of Microsoft. ``Shares could go to $73, $75.'
Microsoft said sales of personal computers were slower than expected during the first two months of the quarter. Many companies delayed purchases while evaluating whether lingering problems from the Year 2000 computer bug might arise, Vice President Scott Boggs said. He added that a shortage of unspecified PC parts during the quarter also slowed sales.
``While this was good growth, it was slightly less than what we expected,' Boggs said during a conference call with reporters and analysts after earnings were released.
Slower Growth
Microsoft said sales to businesses rose late in the quarter, although it warned that sales growth could continue to be slow in the ``near term' and earnings could be lower than analysts forecast ``by a penny or two' a share, Chief Financial Officer John Connors said.
Microsoft is expected to earn 43 cents a share in its fiscal fourth quarter ending June 30, according to 23 analysts surveyed by First Call/Thomson Financial. In response to a question about earnings guidance for the fourth quarter, Connors called 41 cents a share ``a good number' to follow.
``Demand for business PCs remained slow in the quarter, and we remain guarded about near-term growth,' Connors said.
Estimates for the company's earnings during its 2001 fiscal year, which begins in July, are about 5 cents a share too high, Connors said. The company has been forecast to earn about $1.92 a share during that fiscal year, according to research published by CIBC World Markets analyst Melissa Eisenstat, who has a ``hold' rating on Microsoft.
Shares Fall
Microsoft shares rose 1/4 to 78 15/16 in Nasdaq Stock Market trading before the earnings were announced. They dropped as low as 73 3/4 on electronic networks after the results were posted. Shares in the Redmond, Washington-based software giant are down 32 percent this year, not including after-hours trading.
Microsoft's earnings also were boosted by $885 million in investment income, from its stakes in other companies and ventures. That grew 23 percent from the $720 million in investment income it reported a year earlier. Connors said he expects investment income in the current quarter to equal or exceed $885 million.
``The investment portfolio gain was even higher than their guidance,' said Christian Koch, an analyst at Trusco Capital Management, which owns about 60,000 Microsoft shares. ``That tells me they aren't getting any forward momentum on revenue.'
Microsoft made 64 investments worth $2.7 billion in the third quarter. The company's total investment portfolio is valued at $21 billion, Boggs said.
Antitrust Woes
Microsoft shares have fallen as its antitrust woes mounted. The U.S. Department of Justice and 19 states filed suit against the software giant in 1998, and the judge in that case ruled this month that Microsoft violated antitrust laws.
The judge, U.S. District Judge Thomas Penfield Jackson, will hear arguments about possible remedies against Microsoft in May and will announce remedies several weeks after that.
Microsoft has vowed to appeal, which could keep the case tied up in appeals court for several years. The uncertainty of the outcome, though, and a possible ruling that could limit Microsoft's business practices worry some investors.
``In the short term, the stock underperforms the market, at least while the remedies phase is ongoing,' Koch said.
Apr/20/2000 19:30
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