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Microsoft beats Street estimates

The software giant's shares rise sharply in early morning trading, after news that its quarterly earnings would beat Wall Street estimates by 9 percent.

Microsoft (MSFT) shares rose sharply in early morning trading yesterday, a day after the company said its third-quarter earnings would beat Wall Street estimates by about 9 percent.

Within the first ten minutes of trading on Wall Street yesterday, Microsoft's stock jumped more than 6 percent, to 90-11/16, as more than 8 million shares traded hands, making it the most active on Nasdaq. It retreated slightly in today's trading, to close at 88-13/16.

"I'm happy to report that Microsoft's business remains quite good" despite a potential industrywide slowdown in personal computer demand, economic turmoil in Asia, and earnings warnings by other high-tech companies, chief financial officer Greg Maffei said in a conference call with Wall Street analysts yesterday. Microsoft nevertheless warned of slowing growth ahead.

As reported earlier, Microsoft's stock has been on a roll even before yesterday's spurt. The software giant is knocking on the door of the $200 billion "market cap" club, joining General Electric in that category.

"We expect our third fiscal quarter will exceed analysts' expectations of 44 cents by about 4 cents or a little more," Maffei said. Microsoft's fiscal third quarter ends March 31.

Some analysts questioned why Microsoft would arrange such a briefing, noting that it's unusual for the company to do so between earnings reports. Maffei responded that the briefing was intended to clear up any confusion among Wall Streeters.

But, he added: "I want to make a point: Growth is slowing."

Microsoft's current fiscal quarter earnings could be the "high water mark" for any quarter in 1998, Maffei said, adding, "We face many competitive threats" from Sun Microsystems, Oracle, IBM, Novell, and Corel, among others.

Maffei said Microsoft Office "continues to grow quite nicely," but acknowledged that he is worried that the growth rate is not sustainable. He also said there will be an Office 99 product, but no release date has yet been set.

Microsoft expects to ship the final beta of Windows NT 5.0 "sometime in the summer," with a final release six to nine months after that, Maffei said.

Europe also was a bright spot in the software giant's sales.

Microsoft remains on target to release its Windows 98 by the end of June. "We do believe there will be some retail kick [from the product], but not an enormous one," Maffei said.

"We have not seen any drop off in OEM revenue," Maffei said of the slowdown in the PC market. He added that, "going forward, we are cautious about PC growth rates."

Asian business remains weak, he noted, claiming that there is little sign that the situation there is getting any worse.

Microsoft did not repurchase any stock this quarter, Maffei said. The quarterly earnings call is expected on April 22, he added.