However, Microsoft sees challenges ahead for the coming quarters.
"The third quarter will have limited new products, heavy spending on [recent acquisition] WebTV and tough foreign exchange [rate] comparisons," chief financial officer Greg Maffei said in a conference call to analysts. "All in all, we anticipate limited sequential revenue and [earnings per share] growth in the second, third, and fourth quarters."
Microsoft expects second-quarter revenues to increase about 30 percent over last year, and its net profits to climb about 10 cents higher in the second quarter compared with the previous quarter, he said.
Microsoft reported net income of $663 million, or 50 cents a share, for the quarter ending September 30, compared with net earnings of $614 million, or 47 cents a share, a year ago. But excluding a $296 million write-off for WebTV, the software giant would have posted profits of 72 cents a share--slightly beating analysts' expectations of 70 cents a share, according to First Call.
Microsoft completed the acquisition of WebTV for approximately $425 million in cash and stock during the quarter.
Revenues, meanwhile, rose to $3.13 billion for the quarter, up 36 percent over a year ago.
"This was a solid quarter across the quarter," Maffei said.
Microsoft's 32-bit Windows desktop operating systems, in addition to its Office 97 and Back Office product lines, drove sales during the quarter, Maffei said. He added that server and server-application software sales rose strongly in the quarter over year-ago figures, but that sequentially the growth rate declined over the past few quarters.
Meanwhile, Microsoft sales to original equipment manufacturers (OEMs) grew 48 percent over last year--due to PC unit sales growth and a shift to workstations running Microsoft's NT server software.
But Japan, which has been important to the PC market,
Microsoft CFO Greg Maffei on the company's future
And he noted that revenues were lower sequentially in all of Microsoft's geographical markets, except the U.S. and Canada. Maffei cited seasonal issues, currency rates, and a dip in demand following the launch of Office 97 as the reason for the slump in revenues.
Microsoft released Internet Explorer 4.0 toward the end of the quarter. And it is Microsoft's handling of Internet Explorer that has caught the attention of the Department of Justice. The DOJ today charged Microsoft with violating its 1995 court order, charging, among several allegations, that the company forced PC makers to install Internet Explorer on computers in order to gain licensing for Windows 95.
Microsoft said over 2 million copies of Internet Explorer 4.0 were downloaded by customers during the first week of its release--setting a new download record for any Microsoft product.
The quarter also was marked by a deal in August in which Microsoft and Apple (AAPL) announced that Internet Explorer will be included as the default browser for the Macintosh operating system. The companies also announced that they had entered into a patent cross-license agreement. In addition, Microsoft invested $150 million in Apple stock, and agreed to continue application development for the Macintosh.