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Microsoft Meets Lowered Earnings Forecasts

At least the news out of Redmond didn’t get any worse for Microsoft Corp., as the company announced Tuesday that it met its lowered earnings forecasts of 47 cents earnings per share and net income of $2.62 billion in its second fiscal quarter.

Revenue for the quarter ended last December 31 was $6.59 billion, an 8 percent increase over the $6.11 billion recorded for the same period the previous year.

In December, Microsoft warned investors that earnings and revenue would be down, the first time that had happened for the software juggernaut in more than a decade.

Corporate Controller Scott Boggs downplayed the lowered revenue and earnings, preferring to accentuate the positive. The $6.59 billion in revenue “was at the upper end of our expectations,” Boggs said during a conference call, adding that a record volume of contracts had been signed during the quarter.

Boggs blamed much of the underwhelming performance on “worldwide PC growth during the quarter in the single digits.” That had a direct effect on sales of Office, one of Microsoft’s chief revenue sources, which was down 2 percent from last year.

On the bright side, sales of several core enterprise products were up. Boggs said that revenues from the .NET Enterprise Server line were “very strong,” with SQL and Exchange sales growing in excess of 50 percent. In addition, revenue from Windows 2000 Professional was up 40 percent, and from Windows 2000 Server showed gains of nearly 20 percent.

Turning to predictions for the rest of Microsoft’s fiscal year, CFO John Connors remained cautious.

Microsoft believes "PC growth in the coming year will be in the very low double digits, and we continue to expect that consumer PC growth will outstrip business PC growth. We remain guarded about the near-term economic outlook," Connors said.

Connors added that sales of Windows 2000, both the desktop and server versions, are expected to remain strong. On the other hand, he said he expects sales of development tools, such as Visual Basic, to be slow, while Microsoft’s industry-wide army of developers wait for the general release of Visual Studio.NET, expected in the second half of the year. - Keith Ward

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.