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Microsoft Corp’s mind was doubtless elsewhere as it prepared to defend itself against Department of Justice allegations that it had violated a 1995 consent decree, but got some cheer from its solid set of first quarter numbers, managing to beat Wall Street’s average estimates by a couple of cents in the process. Redmond reported quarter net profits up 8% at $663m, or $0.50, after a $296m ($0.22) charge related to the acquisition of WebTV Networks Inc, on revenues that rose 36% to $3.13bn. Without the charge the earnings per share would have been $0.72, while First Call’s average estimate was for $0.70 per share. Revenues were basically flat compared to the previous quarter and margins lower, to around 45%. Chief financial officer Greg Maffei, reporting on his first quarter ‘in charge’ warned analysts to be cautious, predicting EPS growth for the second quarter of about a dime because of limited new products, heavy spending on WebTV and a tough foreign exchange market. He added that he sees limited sequential growth in both revenues and EPS through the second, third and fourth quarters. Maffei may have been trying to dampen speculation that he would be upbeat than his notoriously subdued predecessor, Mike Brown, who is now chairman of Nasdaq, but still on Microsoft’s board. Growth across all fronts was strong, reported the company, in Office97, server products and Windows 95 and NT workstation, which grew significantly in both OEM and retail channels. The quarter was rounded off with the release of Internet Explorer 4.0, which has had quite a controversial first few weeks of existence what with the lawsuit from Sun Microsystems Inc, and now the government, but Redmond preferred to emphasize the two million downloads so far. It reckons it has about a 35% browser market share at the moment. Perhaps the most significant financial event in the quarter was the $150m invested in ailing Apple Computer Inc, which involved and the deal struck whereby IE becomes the default browser on the Mac. That is not part of Justice’s investigation as it does not relate to the 1995 consent decree struck between the company and the government. In terms of geography, US and Canada was up 19% to $968m, Europe 50% to $641m – including a 100% increase in WordPerfect-friendly Holland; other international markets were up 37% to $538, with south east Asia prominent and OEM revenues rose 48% to $983m. Cash and equivalents were $9.63bn at the quarter’s end, up from $8.97bn three months earlier. Incidentally this was also the quarter that Bill and Melinda Gates finally moved into their new house in Medina, near Seattle, which has resulted in a $600,000 property tax bill from the local authorities. Regarding Microsoft’s future growth, Maffei quoted Confucius: the cautious seldom error.

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CBR Staff Writer

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