Microsoft tops Q3 estimates

Just when the market seemed to be losing faith in technology stocks, Microsoft Corp. stepped up to the plate Tuesday and delivered another clutch quarterly earnings report. The software giant beat the Street estimate by 3 cents a share.

Microsoft shares closed up 2 1/8 to 83 1/8 ahead of the earnings report.

In the third quarter, Microsoft pocketed $1.92bn (£1.17bn), or 35 cents a share, on sales of $4.33bn. First Call consensus expected Microsoft to earn 32 cents a share with "whisper" numbers placing the profit closer to 34 cents a share. "Microsoft's not in any trouble and they told us so long before the PC guys warned," said Bill Epifanio, an analyst at J.P. Morgan. "They're usually very conservative with their guidance and that was the case this quarter."

The $4.33bn in sales represents a 15 percent improvement versus the year-ago quarter when it made $1.33bn, or 25 cents a share, on sales of $3.77bn. Despite the ongoing price battle in the PC sector, Microsoft continues to grow its total sales, earnings per share and stock price in unison. The sales figure doesn't include unearned revenue of $400m related to the Microsoft Office 2000 Technology Guarantee, which will be recognised in coming quarters.

On a conference call, Microsoft CFO Greg Maffei said the PC market "remains fundamentally healthy." In the fourth quarter, Maffei said sales will be consistent with the third quarter, but up 20 percent from a year ago. Earnings per share will be up 40 percent from a year ago.

Further demonstrating the power and luxury of market dominance, Microsoft also made more than $350m off some investments in the quarter. Microsoft said performance was solid across all product lines, but the brightest spots were Office and the company's SQL server, which competes with Oracle's database software.

Microsoft officials said the strong results were fuelled by a continued shift to the company's higher-priced Windows NT operating system for desktop computers, robust demand for Office despite an impending upgrade and strong sales of applications for back-end server applications.

Sales in the battered Asia region were up 22 percent over year-earlier levels to $475m. Microsoft shares peaked at 95 5/8 shortly after its 2-for-1 stock split in March.

While most analysts are expecting revenue growth on the order of 25 percent to 30 percent in the fourth quarter and through the rest of calendar 1999, Microsoft maintained its typically conservative outlook. "We remain guarded about growth in 1999, given the likelihood that organisations will lock down their systems infrastructures due to year 2000 concerns," Maffei said.

Twenty-three of the 28 analysts following the stock maintain either a "buy" or "strong buy" recommendation.

First Call consensus expects Microsoft to earn $1.32 a share in the fiscal year.

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