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April 22, 2004

Microsoft sees opportunity in sluggish upgrades

With Microsoft Corp's fiscal year drawing to a close, the company is dangling the prospect of new business opportunities in fiscal 2005 before an expectant Wall Street.

By CBR Staff Writer

Turning a negative into a positive, Microsoft believes there exists an enormous opportunity to move customers of legacy Windows NT, Windows 2000 onto Window Server 2003, whilst simultaneously converting millions of PCs running Windows 98 and Windows 2000 over to Windows XP with a planned Windows SP2 release.

Company CFO John Connors told financial analysts yesterday: The overwhelming majority of customers are not on our newest products… [we] have enormous opportunity on the server side, getting NT 4.0, predecessors and Windows 2000 onto Windows Sever 2003.

For fiscal 2005, which starts in July, Connors forecast Microsoft’s revenue would be between $37.8bn and $38.2bn, with income of between $15.9bn and $16.3bn, and earnings per share of $1.16 and $1.18.

Connors spoke to analysts whilst announcing a 39% drop in income to $1.31bn on revenue that grew 17% to $9.17bn for the three months to March 31. Earnings per share dropped $0.08 to $0.20.

Included in the quarter was $2.53bn pre-tax charge for costs related to legal issues, including the $1.6bn settlement to outstanding litigation with Sun Microsystems Inc and $603m fine levied by the European Commission.

For the nine months, Microsoft’s income dropped 9.4% to $5.4bn on revenue that grew 14% to $27.5bn. Earnings per share dropped five cents to $0.50.

For the compay’s fourth quarter, Connors predicted Microsoft revenue between

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$8.9bn and $9.0bn, with earnings per share of $0.23.

Of Microsoft’s seven business units, Business Solutions was the weakest, delivering a 4% revenue increase to $153m. Connors blamed poor US sales execution as a function of new people being placed in district positions.

We won’t see an improvement in the fourth quarter, hopefully we’ll see that in 2005, Connors said.

Connors joined a growing Microsoft executive consensus, that Windows XP has not been as widely adopted as expected. Connors attributed the failing to Microsoft’s success in sewing up deals with OEMS before Windows XP’s launch, which appear to account of the majority of installations. A significant number of the install base aren’t running Windows XP, Connors said.

This article is based on material originally published by ComputerWire

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