Microsoft posts solid earnings, beats Street

Microsoft jumped on the two-day joyride of positive high-tech quarterly reports, beating by two cents estimates for earnings per share and posting fiscal third-quarter revenue of $6.46 billion.

The revenue was up 14% over the same quarter last year. Net income was $2.45 billion, up slightly from the $2.3 billion posted in the same quarter last year.

Microsoft officials said the primary contributors to the solid results were strong sales of Windows 2000 Professional, the desktop version of the operating system, and its .Net Enterprise Servers, namely SQL Server and Exchange Server.

"We came in on the high end of our expectations," John Connors, Microsoft's chief financial officer, said during a conference call. "It is gratifying to see continued momentum for Windows 2000 Professional. It also is clear our .Net vision is getting mindshare and support." Connors called .Net the most compelling offering for the development of software delivered over the Internet.

Revenue for enterprise software and services -- including enterprise platforms, server applications, developer tools and enterprise services -- grew 22%, to $1.25 billion.

For server applications, Microsoft officials said revenue from Microsoft's .Net Enterprise Servers and sales of client access licenses increased 53% over the same quarter of fiscal 2000.

While Microsoft was bullish on the .Net servers, stalwarts SQL Sever and Exchange drove the positive growth. Revenue for both those servers, which are .Net in name more than anything else, grew in excess of 45%.

In the quarter, Microsoft released three more .Net Enterprise Servers: BizTalk Server 2000, Application Center 2000 and Internet Security and Acceleration Server 2000. Only Mobile Information Server remains to be shipped in the line of eight .Net servers.

Enterprise platforms, which include Windows 2000 Server and Windows NT Server, grew 5% from the third quarter of fiscal 2000. Microsoft officials said they were encouraged by the revenue growth of Windows 2000 Advanced Server and DataCenter but did not provide percentages of growth.

Reports, however, show those two servers are not selling as well as the low-end Server version. That version accounts for nearly 70% of sales, according to IDC.

Windows 2000 Professional accounted for 35% of all 32-bit operating systems that Microsoft shipped during the quarter, up from 31% for the fiscal first quarter.

Revenue for desktop platforms, driven by Windows 2000 Professional, was $2.05 billion in the third quarter, representing a 16% growth from the third quarter of the prior year. But slowing PC shipments resulted in flat revenue growth for the consumer operating systems Windows Me and Windows 98.

Microsoft strong earnings come as technology stocks continued climbing for the third straight day. The gain has been boosted by some favorable earnings reports and the Federal Reserve's surprise interest-rate cut on Wednesday.

On Wednesday, IBM and Apple Computer announced earnings that eclipsed Wall Street estimates. IBM reported a 15% rise in earnings, while Apple reported earnings of 11 cents per share, crushing predictions it would earn only one cent per share.

Despite the solid numbers, Microsoft's Connors said Microsoft remains wary of the struggling economy.

"We have to focus on our execution and see where the economy goes," Connors said.

Microsoft predicts revenue in the next quarter to be between $6.3 billion and $6.5 billion. Diluted earnings per share are expected to be 41 or 42 cents. Microsoft will have to take a charge of one cent related to the acquisition of Great Plains Software, which was completed April 5.

Microsoft posts solid earnings, beats Street

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