Microsoft Corp. shattered analysts' estimates in its second fiscal quarter Tuesday, returning a profit of $1.98bn (£1.2bn), or 73 cents a share, on record sales of $4.94bn (£3bn). The figures represent an earnings jump of 75 percent.
Microsoft shares closed up 5 7/8 to a 52-week high of 155 5/8. First Call consensus pegged the software giant for a profit of 59 cents a share in the quarter.
Company officials credited strong PC shipments for the improved demand for its Windows NT servers, workstations and Office '97 offerings. "However, results also spiked due in part to demand caused by year 2000 concerns," said chief financial officer Greg Maffei in a prepared release. "We remain guarded about growth in 1999, given the likelihood that organisations will reduce their non-Y2K-related IT spending and the uncertain international economic outlook."
In after-hours trading, Microsoft's stock jumped nearly $8 a share to 163 1/4. Maffei said on a conference call that the 60 cents a share consensus estimate for the third quarter is "a little light" by two or three pennies. Fourth quarter estimates are one to two pennies light. Revenue for the third quarter will be about $4.6bn (£2.8bn), down slightly from a seasonally strong quarter, said Maffei. "All in all, it was a rather stunning quarter," said Rick Sherlund, an analyst at Goldman Sachs. The $4.94bn in sales represents a whopping 38 percent improvement versus the year-ago quarter when it pocketed $1.13bn (£0.6bn), or 43 cents a share, on sales of $3.59bn (£2.2bn). Last quarter, Microsoft earned $1.68bn (£1bn), or 62 cents a share, on sales of $3.9bn (2.4bn). Its shares hit a 52-week low of 67 last January.
Tuesday's blowout earnings didn't catch anyone by surprise. "I don't see any softness in Microsoft's business," said Steve Shepich, an analyst for Olde Discount Corp. in the US. Much of the upside surprise can be attributed to the release of several new products including its SQL server. Microsoft's SQL Server, which was released in November, is the Redmond giant's attempt to expand its enterprise software business. Microsoft has been aggressively pricing SQL in an effort to upend Oracle Corp., the dominant database software vendor.
The SQL server is the first of three products that Microsoft is hoping will continue to fuel growth. Microsoft is expected to release Office 2000 in the spring followed by Windows 2000, formerly NT 5.0, in late summer or early fall.
Microsoft's stock continues to explode despite its ongoing antitrust trial with the Justice Department. Analysts have said the trial was worth watching, but wasn't worth worrying about. Aside from daily theatrics, analysts weren't concerned about the antitrust trial because it's a long way from being resolved. "I'm pleased with the way it's going," said Shepich. "It doesn't look like there will be any impact in the long run even though there will be a possible ruling against Microsoft."
At this point, it seems unlikely that anything short of an act of God will slow down Microsoft's impressive economic assault. First Call consensus expects it to earn $2.36 a share in the fiscal year, though those estimates will likely rise as a result of Tuesday's sales and profits.
Larry Dignan contributed to this report