Microsoft Corp finished off its fiscal year in the style that investors have come to rely on, with better-than-expected earnings on strong revenue growth. The Redmond, Washington-based software giant posted fourth-quarter net income up 62.3% at $2.2bn, or $0.40 per share, beating the $0.36 consensus estimate of analysts surveyed by First Call. Revenue for the quarter jumped 38.8% to $5.76bn, driven by healthy gains across all of the company’s businesses. For the full year, Microsoft reported net income up 73.4% at $7.79bn on revenue up 29.4% at $19.75bn. Earnings per share for the full year rose 69% to $1.24. Full-year results include a one-time gain of $160m, while the year-ago numbers include $296m acquisition-related charge.
Windows platforms revenue was $2.25bn in the quarter, up from $1.7m a year ago, fueled by increased uptake of NT workstation – which accounted for 27% of overall operating systems revenue, up from 25% in the preceding quarter. The company says it has now licensed 37 million seats of NT Workstation in total. In the applications and developer business segment, revenue was $2.93bn, up from $1.98bn a year ago. Exchange had another strong showing, with 4.9 million seats licensed during the quarter. Comsumer, commerce and other revenue totaled $593m, up from $470m in last year’s quarter. That portion of revenues includes the WebTV business, which Microsoft now claims has 800,000 subscribers.
OEM revenue rose 27% to $1.64bn during the quarter, mostly due to higher PC shipments and the increased NT workstation penetration. Geographically, the South Pacific and Americas region saw revenue up 48% at $2.36bn, while sales in the Europe, Middle East and Africa region rose 33.3% to $1.2bn. Microsoft claims that the UK- based business in thriving, approaching the $1bn mark in annual revenues. Revenues from Asia, meanwhile, jumped 53.2% to $570m. Foreign exchange provided a small boost to the quarter but the company declined to provide a specific figure for net exchange gains.
During the quarter, Microsoft recognized $300m of the $400m in revenue that was deferred from last quarter due to due to the fact that free Office 2000 upgrades had been given out to purchasers of Office 97. Some of those sales spilled into the fourth quarter and $100m in deferred revenue was added, so there is still $200m in deferred revenue left on the books.
Overall operating expenses for the quarter increased to $2.86bn, or 49.6% of sales, from 2.28bn (54.9%) in the year-ago quarter. The bottom line was impacted by about $0.03 due to the effect of a $217m charge related to a change in the company’s employee stock option plan that was included in operating expenses. That charge, coupled with about $0.01 in legal expenses, was more than offset by $0.05 in gains related to channel returns estimates and unearned revenue for a net $0.01 positive effect. The company estimates that a similar $0.03 charge stemming from stock options will be recorded in the current fiscal year. Overall cash flow for the quarter was $2.6bn as net cash on the balance sheet decreased to $17.24bn mostly as a result of the $5bn AT&T Corp investment.
Looking ahead, chief financial officer Greg Maffei has typically tempered his enthusiasm about the coming months, warning that in fiscal 2000 revenue growth rates will decline due to slowing PC demand, uncertainty surrounding Y2K and uncertain global economic conditions. Maffei warned investors and analysts that Windows platforms revenue during the first quarter will be down sequentially and show only modest year-over-year growth. For the full year, platform revenue will see only about one-third the growth it enjoyed in fiscal 1999, due to the expected slowdown in PC shipments and the anticipation of Windows 2000. The applications and developer segment should see 25% growth in the first quarter and high single-digit growth for the full year, according to Maffei. Consumer commerce and other revenue should grow 75% for the year.
Overall, earnings for the first quarter are expected to show low 20% growth from the year-ago quarter – in which the company earned $1.68bn – on revenue that will also grow 20% from last year’s $3.95bn. Revenue growth for the full year should be in the high teens, down from last year’s 29%. Maffei advised analysts to stick with current published fiscal 2000 expectations going forward, but to include the aforementioned $0.03 stock option charge in their models.
