While the legal wrangling over Microsoft’s business practices continued in Washington DC today, the release of the company’s first quarter results showed that it still has one of the most successful business models in this, or any other sector. Net profits rose 154% to $1.68bn on revenues up 26.3% at $3.95bn; although on removing anomalous charges and gains, the growth in ongoing earnings becomes less dramatic at 56% on a per share basis. Once again, Microsoft has exceeded the expectations of its admirers on Wall Street, and chief financial officer Greg Maffei virtually ordered analysts to add at least another five cents to their forecasts for the second quarter. However, Jerry Masters, Microsoft’s senior director of planning and reporting, said that revenue growth continues to slow down, with first quarter growth of 26% being substantially lower than the respective comparative quarter’s of 36%. Warnings aside though, CFO Maffei said Microsoft’s great quarter was in no way unique to the technology sector which, he added, was generating excellent results in the face of global economic uncertainty. The figures do not indicate an economic meltdown, he said. Maffei cited strong results from the six largest companies in the software sector which, he said, had all beaten their estimates, adding that the PC industry was prospering, including what he referred to as its partner Apple Computer Inc. The big news in the quarter, according to Masters, was Microsoft’s desktop platforms business. Ten million units of Window 98 have now been licensed while NT workstation licenses continued to climb, contributing 18% of the total quarterly revenues. There are now more than 20 million licensed desktop NT units. NT server revenue is also growing, but not as fast as it has been, said Masters. Operating costs declined in the quarter, helped by the shift to CD-ROMS (which are cheaper to distribute than disks) and by the growth in company-wide site licenses. However, the cost of defending itself against the current allegations of monopolistic business practices added $4m of costs in the quarter. Income from Microsoft’s vast pile of cash and investments ($17bn in cash and $5bn of equity investments) came to $261m in the quarter. Which puts Microsoft’s annualized investment income at more than the entire 1997 revenues of the sixth biggest software company in the world, Novell Inc.
