"There were no real surprises," said Chris Calvin, analyst at investment banking firm Hambrecht & Quist in San Francisco. "The story as always with Microsoft is diversifying sources of revenue. In fact, the earnings were modestly above our expectations."
The company reported earnings of $562 million for the third quarter on revenue of $2.2 billion. That compares to $575 million in earnings and $2.194 billion for the previous quarter. Earnings per share came in at $0.88, a 2-cent drop from the second quarter.
The new figures represent a 42 percent increase in net income and a 39 percent rise in revenue compared to the third quarter one year ago. But Microsoft officials cautioned analysts not to expect a quick return of the firm's historically high growth rate.
"We face the specter of saturation," said CFO Mike Brown during a conference call after the release of the figures. "We are increasingly depending upon the upgrade market of existing products...It's probably not prudent to expect growth rates to be as high in 1997."
Nevertheless, the company's Desktop Applications division, which sells its Microsoft Office and other productivity applications, topped $1 billion in revenue this quarter. The high sales were spurred by the late 1995 launch of Windows 95 in several foreign markets and the subsequent release of 32-bit versions of Microsoft Office. Sales to Asian markets were particularly strong. Separately, IDC Japan reported today that Microsoft has sold almost 4 million copies of Windows 95 in Japan since its release in November.
Despite the lackluster quarter, Microsoft is still steadily becoming more monolithic. Including all sales from the past 12 months, Microsoft revenue totaled $8 billion for a year period, the highest revenue total for a one-year period in the company's history, Treasurer Greg Massei said.