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Microsoft's Earnings Beat Estimates Again

Software: 4th-quarter profit jumps 22%, which firm attributes to strong demand for products. CFO warns of slower sales ahead.


SEATTLE — Microsoft Corp. continued a trend that has baffled Wall Street observers for more than four years: Its earnings once again exceeded published estimates.

The world's largest software company said Tuesday that its fourth-quarter profit surged 22% over the same period last year to $2.44 billion, citing strong worldwide demand for its products.

However, the company's new chief financial officer, John Connors, said sales of business PCs were slower than expected and cautioned investors to expect slower PC desktop sales for the next several quarters.

"We remain cautious in our expectations for near-term PC demand and corporate software spending, and continue to anticipate moderate revenue growth through the remainder of fiscal 2000," said Connors, who became CFO last month.

Growth in business PC sales, he said, will decline to single digits over the next two quarters, and Connors urged analysts to stick to their earnings estimate of 41 cents a share for the next quarter.

"I would caution you not to go above that estimate," he said.

Even so, Connors said he was "very pleased" with results in the quarter that ended Dec. 31. Microsoft's earnings of 47 cents a share were up more than 30% from 36 cents a share posted last year. Analysts had predicted earnings of about 42 cents a share.

The numbers excluded a one-time charge of 3 cents a share--the result of the company's decision to settle a lawsuit by Caldera, a software maker based in Utah.

Including the charge, Microsoft's $2.44-billion profit was 44 cents a share. It posted revenue of $6.11 billion--an 18% increase over the $5.2 billion for last year's quarter.

Microsoft rose $3.06 to $115.31 in regular Nasdaq trading before the earnings were announced. The shares eased slightly in after-hours trading. For some analysts, the better-than-expected result also demonstrated that the packaged software business, dominated by Microsoft, is not quite dead.

"It clearly indicates that even though Microsoft is going through a transitional stage, that they have some really solid revenue streams that they can tap into," said Michael Gartenberg, a financial analyst with GartnerGroup.

Connors said the second-quarter gains reflected "solid customer demand from around the world, particularly in Asia."

The new CFO attributed much of the slowdown for business PCs to buyers' hesitation ahead of next month's launch of Windows 2000, which is the firm's latest operating system for corporate computers. Analysts expect the new operating system to trigger a strong upgrade cycle.

"I think it's going to do very well for the company," said Brian Goodstadt, a financial analyst for S&P Equity Group. "I expect Windows 2000 to drive earnings for the next couple of years."

Microsoft executives said revenue growth in the second quarter reflected strong sales of its Office 2000 desktop software. That was partially offset by moderate growth for Windows operating systems.

Separately, Microsoft brought back its suspended $400 Internet-access rebate plan in California and Oregon after fixing a loophole in the fine print that may have cost it millions of dollars. Under the previous version of the holiday rebate plan, customers could get as much as $400 of credit in exchange for agreeing to three years of Internet access through the Microsoft Network. But the offer allowed consumers to cancel access and keep the rebate.


Times staff writer Joseph Menn contributed to this report.



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