Benefiting from growing demand for PCs loaded with Microsoft operating systems and software, the company reported earnings of 47 cents per share, on revenues of $6.11 billion. This is up from split-adjusted earnings of 36 cents per share for the same period last year and revenues of $5.2 billion. First Call analysts expected the company to report earnings of 42 cents per share.
Factoring in a charge of 3 cents per share related to the recent settlement of a private antitrust lawsuit brought by Caldera, the company reported a net income of 44 cents a share. The suit was settled on the eve of trial.
At 1 p.m. PST, the close of regular trading, Microsoft shares were up $3.06, or about 3 percent, to $115.31.
"We are very pleased with this quarter's results, which came in as expected reflecting solid customer demand from around the world, particularly in Asia," John Connors, chief financial officer at Microsoft, said in a statement. "With the upcoming launch of Windows 2000, we are extremely excited to usher in a new era in personal and business computing."
Nonetheless, in a conference call with financial analysts Connors took care to warn about sluggish growth in sales to corporate customers. Many large companies stopped buying technology products toward the end of the year as part of their preparations for the Year 2000 bug, he said.
"The consumer segment is healthier than the business segment, but that did not offset slowing demand" among large businesses, Connors said. Moreover, investors should not expect an immediate uptick in those sales when Windows 2000 hits stores on February 17, he said, because of the complicated nature of pricing contracts and corporate upgrade cycles. Sales should increase by the fourth quarter, he said.
"It will take some time for...companies to sign the contracts," he said. "This won't happen overnight."
The new chief financial officer also ventured to explain a charge related to the manner in which Microsoft accounts for employee stock options. Microsoft took a charge of $120 million related to a change in tax procedures for handling employee stock options, he said. This was in addition to the charge related to the Caldera lawsuit settlement.
The earnings report comes less than a week after the company announced that co-founder and chief executive Bill Gates will step down from day-to-day management of the company. Microsoft president Steve Ballmer was named the new chief executive, and Gates will remain as chairman and take on a new title of chief software architect.
The software maker has had a tumultuous year as it waged a number of legal battles, most notably the landmark antitrust suit. Outside the legal realm, Microsoft has faced new challenges in its operating system business from upstart Linux, renewed competition on the Net front from America Online and struggles to gain a foothold in newer businesses like the handheld devices and TV set-top boxes.
Despite all this, the company's earnings have continued to grow, reflecting the overall health of the PC industry. Out of 25 analysts polled by First Call, 12 maintain a "strong buy" recommendation on the company.
"It's been a good quarter," Michael Kwatinetz, a Credit Suisse First Boston analyst told Bloomberg News. "The PC market has been on fire."
Today, Microsoft was back in court for the first time since U.S. District Court Judge Thomas Penfield Jackson issued a scathing ruling against the software maker, presenting its proposed "conclusions of law" in response to Jackson's earlier ruling. In a preliminary finding last year, Jackson found that Microsoft did enjoy monopoly status in the desktop operating system and had unfairly used that advantage to gain access to other markets.
And earlier this month, Microsoft settled a long-standing lawsuit with Caldera. Orem, Utah-based Caldera had claimed Microsoft used its dominance in PC operating systems in the early 1990s to crush competition from a product called DR-DOS, which Caldera obtained from Novell in 1996.
Continuing that momentum, Microsoft will complete its costliest software project to date when it officially rolls out Windows 2000 next month in San Francisco. Although computers loaded with the next-generation operating system will be available before then, the release of the corporate OS is expected to have an enormous impact on both Microsoft profits and industry sales.
As is typical for the company, Microsoft's Connors included a note of caution in the otherwise enthusiastic report: "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."
Bloomberg contributed to this report.