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Microsoft tops 4Q estimates, sees 5 pct growth in 1Q

Microsoft (Nasdaq: MSFT) beat the consensus profit forecast and met its own revenue guidance in the fourth quarter, and expects slightly higher revenue and earnings in the first quarter.

After market close Tuesday, the Redmond, Wash.-based software giant posted fiscal fourth quarter net income of $2.41 billion, or 44 cents per share. First Call's survey of 25 analysts predicted a profit of 42 cents per share for the quarter ended June 30.

Fourth quarter revenue increased to $5.8 billion, a marginal improvement from $5.76 billion in the comparable period a year ago. Microsoft had previously said it expected essentially flat revenue growth in the fourth quarter, because of slow demand for business PCs, a decline in business among small builders of PC systems, and a difficult comparison with last year's fourth quarter, when the company launched Office 2000.

"We are satisfied with this quarter's financial performance," CFO John Connors said, during an afternoon conference call with analysts.

Don't look for much stronger growth in the first quarter of fiscal 2001, Connors said.

Microsoft currently expects first quarter revenue growing 5 percent from a year earlier, and falling 3 percent from the fourth quarter because of the historically slower summer season. The company currently doesn't see business PC demand recovering until the second quarter, though it could happen at the end of the first, Connors said, during an afternoon conference call.

Several months of sustained growth for business PCs and small builders of systems is needed before Microsoft's desktop PC business returns to higher growth rates, Connors said. Business PC sales in the fourth quarter rose in the single digits, better than the previous quarter, "but still a drag on our business," he said.

Earnings per share in the first quarter should rise 3 cents from the comparable period a year earlier, Connors said. That projection excludes the effect of a 2 cents per share gain from the sale of the Sidewalk local Web content business last year.

Microsoft earned 38 cents per share in the first quarter of fiscal 2000.

Windows platform revenue in the fourth quarter rose 5.7 percent year-over-year, to $2.37 billion from $2.25 billion. But sales from productivity applications and developer tools fell 9.9 percent over the same period, to $2.64 billion from $2.93 billion.

Unlike the fourth quarter of fiscal 2000, which saw the launch of Office 2000, the latest quarter completed saw no major applications introduced. Excluding last year's effects of Office 2000 coupon redemptions and a one-time reduction in estimated product returns, Microsoft's revenue increased 9 percent year-over-year, Connors said.

Prior to the earnings announcement, several Wall Street analysts had echoed the company's concerns that a slowdown in business PC sales could hurt Microsoft's revenue growth.

Consumer revenue increased to $796 million from $593 million.

"Although we remain guarded in the near term about business PC growth rates, we look forward to the tremendous opportunity in front of us with the Windows 2000 generation of server products," Connors said in a statement.

Among geographic areas, Asia led with 20.9 percent growth, to $689 million from $570 million. Revenue from Microsoft's South Pacific and Americas region slid 5.3 percent to $2.23 billion from $2.36 billion. Europe, Middle East and Africa revenue dipped 3.9 percent to $1.2 billion from $1.15 billion.

Sales related to original equipment manufacturers gained 5.6 percent to $1.73 billion from $1.63 billion.

Company executives were pleased with the growth of Microsoft's Internet businesses.

"We have grown the network considerably in all measurable respects, and most important, we have begun to monetize the assets," Connor said, adding that the company achieved its goal of generating more than $1 billion in annual revenue from Internet businesses.

The company reiterated its claim to have seized the traffic lead for Internet properties. The MSN network recorded 20 percent growth in average minutes of use per user, and 19 percent year-over-year growth in U.S. audience reach. The company's ISP, MSN Internet Access, now has 3 million members, a 20 percent improvement from a year earlier.

Those Internet units should see at least 50 percent year-over-year growth in the first quarter, with higher growth rates for the rest of the year, Connors said.

For the full fiscal 2000, Microsoft earned $9.42 billion, or $1.70 per share, on revenue of $22.96 billion. "We feel absolutely good about our full year fiscal 2000 results," Connors said.

Microsoft's expectations for the full fiscal 2001 remained essentially unchanged from the company's conference call in April. Connors reiterated his prediction of 15 percent revenue growth for the year and said analyst estimates "are about right" for the year.

First Call currently predicts a profit of $1.88 per share for Microsoft's full fiscal 2001.

The company expects adoption of Windows 2000 to increase as server applications are rolled out. The pending release of the first Windows 2000 service pack should also drive adoption, Connors said.

"We feel very good entering 2001," he said.>