Microsoft Corp’s Office 97-fueled third-quarter results, expected to be great, turned out to be phenomenal. Redmond reported net income up 85% at $1.04bn on revenue up 45% at $3.21bn. Earnings per share increased 80% to $0.79, when analysts were expecting something slightly better than $0.64. Sales of Office 97 licenses, which the company says are moving at three times the rate of any previous version, are currently more than 8 million. Microsoft has every reason to celebrate the outstanding quarter, but CFO Michael Brown put a sober spin on the ones to come. In addition to a $300m charge resulting from the WebTV purchase to be taken next quarter – expected afterwards to be dilutive to the tune of $0.01 per share for about a year, Brown warned of slowing revenue growth and increasing margin pressure, mostly due to an approaching downtime in product cycles. Revenue from the mysterious Memphis wont be realized until mid-fiscal 1998 and Office 97 will cool off in the meantime. Coupled with increased research and development spending and the strengthening dollar – Microsoft hedges dollar rates a year ahead and last year’s rates were more favorable – Brown thinks the next two quarters will see a slight downturn, followed by moderate increases beginning with the second quarter of 1998.
