Win 98, Office boost Microsoft

The software giant slightly beats fourth-quarter estimates as revenues rise on the strength of Office 97 sales.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
3 min read
Microsoft slightly beat Wall Street's fourth-quarter estimates today, as the company's revenues rose in part on strong Office 97 sales.

The software giant's revenues rose 28 percent for the year, and climbed 26 percent for the fourth quarter.

But the first quarter may see a decline in revenues and earnings from operations when compared with over the previous quarter, cautioned Greg Maffei, chief financial officer.

"Summing it up for the first quarter, it seems likely that revenue will be down sequentially by perhaps a couple of hundred million dollars, mostly due to seasonal factors in the absence of the Windows 98 retail launch," said Maffei, who added that earnings per share from operations may fall a slight 1 cent per share.

"It was a solid quarter that was within our expectations," said Rob Owens, a senior analyst with Pacific Crest Securities.

Maffei's comments are "standard cautionary tones for Microsoft," he added. "But they are facing some challenges. PC sales are slowing, there's saturation of the desktop in terms of the Office products, and there's not a major platform migration in the immediate future."

Still, Owens expects a strong product cycle in the coming year to produce solid revenues. "NT sales and BackOffice are strong and it looks like they'll get a nice boost from Windows 98," he said. "Office 2000 is in sight and SQL Server 7 is coming out soon, so they could see some nice revenue cycles over the next six quarters."

Jerry Masters, the software giant's senior director of planning and reporting, added Microsoft's revenue and earnings growth are slowing.

Revenue growth of 18 and 26 percent during the third and fourth quarters, respectively, was roughly half that in the year-ago periods. Earnings-per-share growth of 25 percent in each of the past two quarters is far short of the 82 percent in each of the year-ago periods, Masters mentioned.

Shares of Microsoft traded down in after-hours trading to 117 from its close of 117-3/8 during the regular trading session, according to Instinet.

During the fourth quarter, Microsoft at a glance the software giant reported quarterly profits of $1.36 billion, or 50 cents a share, up from $1.05 billion or 40 cents a share in the year-ago period. Analysts had expected the company to post earnings of 48 cents a share, according to First Call.

Microsoft's revenues climbed to $4 billion for the fourth quarter, compared with revenues of nearly $3.2 billion a year ago. Third-quarter revenues were nearly $3.8 billion.

The company's platform sales rose to $2.1 billion, up 29.4 percent over year-ago figures. Meanwhile, its applications and content sales climbed to $1.9 billion, a 22 percent increase.

Masters said the key revenue drivers in the fourth quarter were Windows 95 and Windows 98, as well as license revenue from computer makers and sales into the retail channel. Office 97 was another key driver in particular through organizational license agreements, he noted.

Desktop applications had a strong quarter driven by largely organizational licenses. For the year, desktop applications grew at the same rate as the company, according to Masters. Sales of Windows 98 reached $150 million during the quarter, he added.

Meanwhile, at the end of the quarter, the consumer platform operations saw its WebTV service count more than 400,000 subscribers, and handheld PCs running Windows CE sold more than 500,000 units, Masters said. Free Web-based emailer Hotmail had 3.3 million active daily users.

Royalties from PC makers grew 35 percent in the quarter over last year. But economic turmoil in Southeast Asia and Japan is excepted to hurt results, Masters said.

For the fiscal year, Microsoft reported a 28 percent increase in revenue to $14.48 billion, up from $11.36 billion the previous year.

Net income for the year was $4.49 billion, or $1.67 a share, compared with $3.45 billion or $1.32 a share the previous year.

In looking at the acceptance of Windows 98, Brad Chase, vice president of Windows marketing, said: "We are pleased to announce...more than 1 million retail licenses of Windows 98 upgrades have already been purchased in North America since the product's June 25 release."

Reuters contributed to this report.