There’s nothing magic about annual sales of $6,000m but Microsoft Corp, on target for at least $7,500m sales this year, and over $8,000m if Windows95 lives up for expectations, will have been disappointed to have come so close to the magic six billion with sales of $5,937m, up nearly 28%. The company says it expects research and development and other operating expenses to continue growing faster than revenues, chief financial officer Mike Brown said – they jumped 41% to $860m in the year, representing 14.5% of turnover. By contrast, IBM Corp spent only 5.6% of turnover in its most recent quarter, which looks a dangerously low figure for a company with any pretensions to being a technology company. It will come as no surprise that Microsoft reported its 20th consecutive year of growth in revenues and profits – the kinds of gut-wrenching setbacks that have afflicted the likes of IBM Corp and Digital Equipment Corp are still some way in the future, and the company credits record results in the OEM market and in Far East channels for the sterling 1994-95 advance.Our largest products families, Microsoft Windows and Office, continued to perform very well despite the upgrades scheduled for each in the coming quarter, chief operating officer Bob Herbold noted. Cash and short-term investments at year-end rose to $4,750m from $3,610m, so it could afford a big acquisition if it were allowed to make one. Microsoft shares jumped $5.375 to $109, a record high, in heavy trading in the Nasdaq market, but the figures were announced after most trading had ended, and the shares finally ended up at $108.50.
Final spurt
The shares have risen 25% over the past three weeks, largely in anticipation of next month’s release of Windows95, with news that the thing was now being packaged for marketing leading to the final spurt. Windows95 is expected to mean about $1,000m in upgrade revenue for Microsoft over the coming year, and will launch a whole new cycle of products, ranging from the company’s Office suite of productivity applications to the forthcoming on-line Microsoft Network, which is likely to be a drain on figures initially as the start-up costs start to bite. Some analysts suggested that Microsoft stock could be overheated, even in the current raging bull market, but several analysts said they were reserving judgement ahead of this week’s annual meeting for analysts at the company’s headquarters, a forum at which executives frequently warn of risks facing the company – it was significantly bearish last year. And Windows95 could still be derailed by the Justice Department – and now that the thing is being packaged, the costs of removing the Microsoft Network access software from the operating system would be significantly higher than they would have been last week.
