MS spouts big profit, says Win 98 OK for Q2

Microsoft Corp. reported second-quarter earnings that beat analysts' estimates and quelled any fears that its recent legal problems might eat into sales.

Microsoft Corp. reported second-quarter earnings that beat analysts' estimates and quelled any fears that its recent legal problems might eat into sales. The Redmond, Wash.-based software company reported net income of $1.13 billion, or 85 cents per share, up 49 percent from $741 million, or 57 cents per share, in the year-ago quarter. Analysts had expected the company to earn 82 cents, according to First Call.

Microsoft's (MSFT) second-quarter sales climbed 34 percent to $3.58 billion from $2.68 billion in the year-earlier quarter.

The company attributed the results to strong sales of its Office 97 and Windows 95 products, mainly from business licensing agreements.

Following its tradition of tempering good news with caution, the company warned that the Asian economy hurt sales during the quarter and would continue to do so in the future.

Microsoft Chief Financial Officer Greg Maffei said sales in the Far East and Southeast Asian regions fell 8 percent from the previous quarter.

"Weakness there will dampen the upside potential," said Maffei, who warned revenue could be $300 million less than planned over the next two quarters because of problems in Asia.

Microsoft executives predicted third-quarter earnings would climb a few pennies, then return to current levels in the fourth quarter.

But many analysts said Asia was the company's latest attempt to prevent investors from overhyping the stock.

"I don't believe that should be used as an excuse. Companies never say, `Our business would have been worse if things hadn't been growing so much in Asia,' " Wasserstein Perella Securities analyst Stephen Dube said, adding that he was impressed with the growth in Microsoft's server products.

Microsoft said demand for its SQL server nearly doubled during the quarter.

But the company also said its general and administrative costs rose 31 percent to $106 million from $81 million in the year-earlier quarter, mainly due to its legal tangle with the U.S. Department of Justice.

In October, the DOJ filed a suit accusing the company of anticompetitive practices. But asked if the proceedings had affected the company materially in any other way, company executives said no.

Microsoft also repeated its determination to release Windows 98 -- its newest desktop operating system - on time, in the second calendar quarter.

"For the time being, it's steady as she goes regarding Windows 98," Microsoft Chief Operating Officer Bob Herbold said.

The company also said it plans to cut sales and marketing costs in the future.

Microsoft shares inched slightly lower in late trading, before the announcement, dropping 81cents to $137 amid a general decline in technology stocks after IBM Corp. (IBM) warned its profit may drop in the current quarter.

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