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Robust quarter for Microsoft

The software giant posts a 25 percent increase in net income for the quarter ending March 31, fueled by strong demand for its products.

Microsoft said today it posted a robust 25 percent increase in net income for the quarter ending March 31, fueled by strong demand for its products.

MSFT at a glance The software giant recorded net profits of $1.34 billion (50 cents per share) for the quarter, up from $1.04 billion (40 cents) for the same period a year earlier. Quarterly revenue rose to $3.77 billion from $3.21 billion, an 18 percent increase.

The company's stock broke into record territory, closing at 98.875, up 4 points in trading. It has traded as high as 95 and as low as 53.0625 during the past 52 weeks.

"We are gratified that the quarter's results confirm that consumer demand remains strong for Microsoft's products that let people be more productive, communicate more easily, and access information on the Internet," said chief financial officer Greg Maffei in a statement.

Maffei added this cautionary note, however: "It is critical to note that our growth has slowed for each of the last four quarters, and we are likely to experience slower growth for the balance of calendar 1998."

Some analysts, however, are skeptical that Microsoft's earnings engine will falter. "Typical boilerplate," noted Michael Stanek, analyst with Lehman Brothers. "Trends just don't stop flat in their tracks."

Stanek said the release of Windows 98 in June will add about $1 billion in revenue, or 10 cents to 12 cents a share, to Microsoft's bottom line for fiscal 1999.

Today report beat First Call's consensus of analysts' estimates, which pegged Microsoft's earnings at 48 cents per share for the quarter, but the company said on March 25 that its third-quarter earnings would beat Wall Street estimates by about 9 percent. At the time, Microsoft's CFO said that the third fiscal quarter ending March 31 would exceed analysts' estimates of 44 cents per share by about 4 cents--"or a little more."

The company said business is strong, especially in North America. It is being boosted by strong adoption of Office 97. The company said it remains concerned about its business in Asia, which has been in economic turmoil. "There is some evidence that the business there is not getting weaker," though, executive vice president Steve Ballmer said.

Microsoft cited building momentum for sales of Windows NT Server, Windows NT Workstation, and BackOffice.

The run-up among tech stocks in recent weeks has catapulted Microsoft into the $200 billion "market cap" club (General Electric is the only other member), and it has increased chief executive Bill Gates's wealth to more than $50 billion.

Not only Gates, but all Microsoft shareholders are benefiting from the surge in the company's stock, which comes despite an ongoing investigation by the Justice Department into its allegedly anticompetitive business practices. Microsoft denies any wrongdoing.

CFO Maffei added the company did not repurchase any of its stock this quarter, but pointed out that a 2-for-1 split of Microsoft's stock took place in February.

Maffei said fiscal fourth-quarter revenue would be roughly flat with the just-completed quarter. He said earnings would be down slightly from the 50 cents per share reported for the third quarter, citing higher sales and marketing costs.

Earnings for the first two quarters of fiscal 1999, which begins July 1, will be similar to the fourth-quarter figure, he said.

He reiterated that Microsoft is set to ship Windows 98 to computer makers on or about May 15, and to get it in retail stories on June 25. He did not expect Windows 98 to offer a "huge pop" to third-quarter earnings, however.

Ben Heskett and Reuters contributed to this report.