Microsoft officials reported an 18 percentincrease in profits for its fiscal first quarter 2001 over the same period ayear ago. The software giant then proceeded to paint a rosy picture for therest of the fiscal year in terms of its Windows 2000 products.
Thesurprising result buoyed Microsoft's stock position significantly. Afterdropping 6 percent two days before the company's quarterly report was released,shares jumped 20 percent in trading the day after the report came out. Microsoft's price had dropped to 50-1/4just before the report, and rose to 61-7/8 after.
For itsfirst fiscal quarter, Microsoft announced a $2.58 billion income beforeaccounting change, which translates into 46 cents per share, bettering the$2.19 billion and 40 cents per share during the same quarter a year ago. Marketanalyst estimates had the software giant more in the neighborhood of 41 cents ashare for 1Q2001 before the accounting change. Strong sales of Windows 2000Professional and Windows Me accounted for much of the quarterly surge,according to company officials.
Including aone-time $375 million charge for the required adoption of Statement ofFinancial Accounting Standards No. 133 (SFAS 133), "Accounting forDerivative Instruments and Hedging Activities," Microsoft actuallyreported earnings of 40 cents per share for the quarter.
Overallrevenue totaled $5.8 billion for the quarter, an 8 percent improvement over ayear ago. During the quarter, Microsoft recognized more than 150 milliontechnology guarantee coupons issued in the third quarter 2000 surrounding thepending launches of the SQL and Exchange servers as well as Office 2000. Minusthe coupons, revenue actually improved 11 percent.
JohnConnors, chief financial officer at Microsoft, said business has been solidacross the board. He anticipates income growth to be strong for the remainderof the fiscal year as Windows 2000 Professional continues to roll out aroundthe enterprise and Windows Me makes greater strides in the consumer area."While we remain guarded about worldwide economic conditions, we areextremely enthusiastic about our Windows 2000 generation of serverproducts," Connors says. He said licensing of Windows 2000 Professionalnow accounts for 30 percent of all 32-bit operating systems the company ships.
Connorsalso noted another major reason for the better than expected growth in thequarter was the early completion of the merger deal of Titus Communicationswith Jupiter Telecommunications, as well as sale of TransPoint to CheckFree.Microsoft has investment interests in both of the new companies. Completion ofthose deals had not been expected until early 2001.
Microsoftisn't prepared to release sales numbers on Windows 2000 products, but hadpromised to do so during Comdex in November. Some analyst reports have as manyas 7 million copies licensed to date, primarily the desktop iteration. Therelease of the Enterprise 2000 server family during the quarter is expected tohave a very positive impact during the rest of the fiscal year.
"Ithink the release of Exchange 2000 will be the real dam-breaker," saysDwight Davis, an analyst with SummitStrategies. "That will pull the deployment of Windows 2000 servers bynecessity. I'd say their prospects were pretty bright as far as their goals forthe rest of the fiscal year."
The primarygoal is percentage revenue growth in the low teens for the next quarter, andcomparable growth over the rest of the fiscal year. Microsoft expects particularinterest in the 2000 versions of SQL and Exchange servers as the fiscal yearprogresses.
"Thatwould make sense, since SQL Server is really critical to Microsoft's .NETvision," Davis says. "It's rather unusual that they haven't reallysaid much about it on a marketing level other than the benchmark numbersthey've been throwing around. But I think they'll have a stronger databasecontender with this SQL release. It's still Oracle's game, but Microsoft shouldbe able to build a healthy business."
MicrosoftCorp., Redmond, Wash., www.microsoft.com
SummitStrategies, Boston, www.summitstrat.com