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Microsoft Profit Soars 28% Amid Strong Sales

Technology: But company says fiscal third-quarter revenue growth was slowest in two years and further slump is expected.

April 23, 1998|From Times Staff and Wire Reports

SEATTLE — Microsoft Corp. on Wednesday reported a 28% increase in quarterly profit, beating Wall Street expectations, as revenue grew 18% amid strong sales of its business software.

But the world's largest maker of personal computer software warned that revenue growth was its lowest in two years and was likely to slow further the rest of the year, dragged down in part by the Asian economic slump.

Microsoft said it earned $1.34 billion, or 50 cents a share on a diluted basis, in its fiscal third-quarter ended March 31. That was up from a profit of $1.04 billion, or 40 cents per share, in the year-ago quarter.

Revenue rose to $3.77 billion from $3.21 billion.

The results come amid close government scrutiny of Microsoft, which has been accused by the Justice Department of abusing its monopoly in software for running computers to control other software markets.

Microsoft's successful quarter also stands in stark contrast to that of Intel Corp. and Compaq Computer Corp., two other leaders in the PC industry, which have recently announced sharp earnings declines as a result of poor demand for high-performance personal computers.

Greg Maffei, Microsoft's chief financial officer, said the rapid growth in sales of personal computers priced at less than $1,000 could hurt Microsoft's future earnings as computer makers "are pushing for lower prices on low- cost computers." Microsoft's ability to take a growing share of the profits on each PC shipped has been a bone of contention as declining PC prices have cut into the profits of the PC makers.

Maffei also warned that Microsoft could see weaker sales over the next two years as major corporations delay computer purchases to tackle problems that rise with the inability of their computers to properly handle dates beginning in 2000.

Microsoft's profit beat expectations of analysts surveyed by First Call, who were expecting 48 cents-a-share profit. The results were released after the close of financial markets. Microsoft stock rose $4 to close at $98.88 on Nasdaq.

Microsoft cited strong sales of its Office software and growing demand for its Windows NT, Microsoft's operating system for networks of computers, and its BackOffice suite of applications.

Maffei said the Redmond, Wash.-based company was pleased that consumer demand remained high for its products.

"But it is critical to note that our growth has slowed for each of the last four quarters, and we are likely to experience slower growth for the balance of calendar 1998," he said.

Microsoft cited its size as one reason for slowing down; as the company gets larger it has a tougher time maintaining speedy growth.

Microsoft said a month ago that it would report better-than-expected quarterly profits despite Asia's economic woes and financial shortfalls at other major high-tech companies.

While the Asian market for Microsoft's software remains weak, there are signs it may have bottomed, Microsoft Executive Vice President Steve Ballmer said in a statement.

Looking ahead, Microsoft should benefit from continued strong sales of its Office 97 software in the April-June quarter. But sales of its Windows 98, the upgrade to its PC operating system due out June 25, will start at the end of the period and shouldn't have a big impact on these results, said Carla Lewis, Microsoft's senior director for investment relations.

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