Microsoft soars on huge quarter

Microsoft can find solace in financial results from another strong quarter, highlighted by a 38 percent increase in revenue over the previous year, even as antitrust woes continue to weigh heavily on the high-flying firm.

Another concern is the delay of a test version of the Windows 2000 operating system. (See related story.)

Microsoft posted earnings of nearly $2 billion, or 73 cents per diluted share, on revenue of $4.94 billion. That compares with earnings of $1.1 billion, or 42 cents per diluted share, on revenue of nearly $3.6 billion, for the same period the previous year.

Analysts expected earnings of 59 cents per share for its fiscal 1999 second quarter, according to consensus Wall Street estimates compiled by First Call.

Shares of Microsoft jumped 7.07 percent in early trading. The stock surpassed its 52-week high of 152.5 by hitting 166.63 in intraday trading, and was the most actively traded issue on the Nasdaq market with 5.5 million shares trading hand this morning.

"It's a juggernaut; there isn't much going wrong," said Michael Stanek, analyst with investment firm Lehman Brothers. "Retail was strong across the board and retail always drives the December quarter. Also, Europe is humming."

A key indicator for Microsoft remains the relative prosperity of the PC industry and its primary chip provider, Intel. The microprocessor behemoth beat estimates last week for its most recent quarter.

"To quote Mark Twain, last October's reports on the death of the PC have been greatly exaggerated," said Greg Maffei, Microsoft's chief financial officer.

The company reported $2.3 billion in revenue from its platforms products group, $2.15 billion from its applications and tools group, and $467 million from its interactive media group and segments listed as "other."

In keeping with past practices, Maffei warned that the company remains "guarded" as far as growth through 1999.

Maffei suggested that the third quarter revenue could decline as much as $300 million compared with the company?s booming second quarter growth. He expects the company?s earnings to grow about 25 percent compared with the previous year.

Offering guidance to Wall Street, Maffei said current estimates of 60 cents per share for the third quarter, as compiled by First Call, are probably 2 or 3 cents too low.

He also said fiscal 1999 fourth quarter estimates are also 1 or 2 cents below his expectations. Analysts expect Microsoft to post earnings of 61 cents a share for its fourth quarter, according to First Call.

But the finance chief also pointed to potential seasonal slowness in PC sales, slower growth rates, poor economic conditions in some corners of the world, and the specter of the Year 2000 as reasons to lower overall expectations for Microsoft. "I would caution those who would want to imagine and forecast much better results that there are many risks ahead right now," Maffei noted.

Most analysts expect Microsoft's stock to continue to perform well ahead of the anticipated spring launch of Office 2000, the latest version of the company's top-selling set of desktop applications.

Microsoft's skyrocketing profits offer a stark contrast amid the ongoing antitrust trial in Washington D.C.

But analysts also say Microsoft should have a better chance to control the tone of the ongoing antitrust case against it now that it has begun to present its defense.

"We're probably going to hear a little more positive news from the trial," said Bill Epifanio, analyst with brokerage J.P. Morgan and Company.

Epifanio also said Microsoft stock was likely to split if it rises a bit more to the $155 or $160 area. Lehman Brothers has set a 52-week price target of $185 per share.

Going forward, analysts expect growth to slow slightly for the firm due to a lack of new products in the next four quarters. Goldman Sachs predicts revenue and earnings growth of 15 to 20 percent over the next year.

Much of the company's future hinges on the release of the next version of the company's Windows NT operating system software for corporations, now called Windows 2000, which has been fraught with delays. Even current expectations for a final test version of the software by April of this year may be optimistic.

Right now, analysts say it is continued strong sales of Windows 98 that is driving Microsoft's business.

Reuters contributed to this report.