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Update: Microsoft tops 2Q estimates, issues usual caution

Strong sales of Office 2000 and large investment gains helped Microsoft Corp. (Nasdaq: MSFT) keep doing what it does best. On Tuesday, the software giant beat analysts' estimates by 5 cents a share in its second quarter.

In the quarter, Microsoft earned $2.4 billion, or 47 cents a share excluding one-time charges, on record sales of $6.1 billion. First Call consensus expected it to earn 42 cents a share.

In a conference call with analysts, Microsoft executives said investment gains produced 4 cents per share more than expected, although the company also saw a one-time charge of 3 cents per share related to the settlement of a lawsuit with Caldera.

Including the Caldera related charge, Microsoft pocketed 44 cents a share in the quarter.

"We are quite satisfied with these results which, all in all, came right in where we expected," said Jerry Masters, Microsoft's senior director of planning and reporting.

Microsoft shares closed up 3 1/16 to 115 5/16 ahead of the earnings report.

The conference call marked the public debut of John Connors as Microsoft's chief financial officer. But even with a new CFO, Microsoft lost none of its trademark caution about future earnings.

Connors urged analysts not to raise their estimates for the third and fourth quarters, despite the pending release of Windows 2000. He predicted 25 percent year-over-year revenue growth for the fiscal third quarter with a "modest" sequential decline, which Microsoft normally sees following the December quarter.

Second quarter revenue was boosted by stronger-than-expected Office 2000 sales, company executives said. That helped offset weaker-than-anticipated revenue from Windows operating systems, which were hurt by a slowdown in corporate PC demand because of Y2K concerns, Masters said.

In the year-ago quarter, Microsoft earned $1.9 billion, or 36 cents a share, on sales of $5.2 billion.

Last quarter, Microsoft hurdled analysts' estimates, raking in $2 billion, or 38 cents a share, on sales of $5.4 billion.

Company officials said the February launch of Windows 2000 would boost sales in the coming quarters, but stopped short of predicting the staggering growth it enjoyed after launching earlier versions of the world's best-selling software program.

"With the upcoming launch of Windows 2000 we are extremely excited to usher in a new era in personal and business computing. However, 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," Connors said in a news release.

Earlier this quarter, analysts set a consensus earnings target of 39 cents a share, but then-CFO Greg Maffei broke from his typically cautious tone when he suggested that sales would improve by as much 14 percent sequentially.

First Call consensus expects it to earn $1.64 a share in the fiscal year.

Microsoft shares moved up to a 52-week high of 119 15/16 in December after trading at a low of 71 15/16 last January.

Thirty of the 33 analysts tracking Microsoft shares maintain either a "buy" or "strong buy" recommendation.

-- Sergio G. Non contributed to this report.