Microsoft today announced strong second-quarter results for fiscal year 2000, reporting revenue of $6.1 billion for the quarter ended December 31, 1999.
The software maker cited continuing demand for its Office application suite and SQL Server database, along with growing demand in Asia, as contributing factors to its good financial showing.
Revenue for the second quarter rose 18 per cent above the $5.2 billion reported in the same period a year ago, according to a company statement. Net income was $2.4 billion and diluted earnings per share were 44 cents, up 22 per cent. Analysts polled by First Call had predicted earnings per share of 42 cents.
Ticking along "We're quite satisfied," was the assessment of Microsoft's Senior Director, Planning and Reporting Jerry Masters, speaking on a teleconference this afternoon. He said that the results had been mixed, with strong performances from products such as Office, coupled with lower demand for the company's operating systems, particularly on the desktop. Masters blamed the lower demand on uncertainty towards the end of last year surrounding the impact of the year 2000 problem, which resulted in a drop-off in demand for business PCs.
Microsoft was particularly hit in its channels revenue from OEMs (Original Equipment Manufacturers), Masters said. Revenue rose to only $1.9 billion in the second quarter of fiscal 2000, compared to $1.8 billion in the same quarter last year.
However, the good news as far as regional revenue went, was the continued recovery in Asia, where revenue rocketed 56 per cent to $606 million in the second quarter of fiscal 2000, up from $389 million recorded in the same quarter a year ago.
Revenue in the South Pacific and Americas region hit $2.2 billion, up 26 per cent from last year's $1.7 billion, while revenue in Europe, the Middle East and Africa grew by 14 per cent to $1.4 billion from $1.2 billion a year ago.
Same ol’, same ol’ Breaking down the results by business divisions, revenue from the Windows platforms unit was almost flat at $2.4 billion, compared with $2.3 billion for the second quarter of fiscal 1999.
Microsoft executives on today's conference call said the slowing in demand for the vendor's operating systems was also due to end-users - particularly business users - waiting for the release of the company's long-overdue Windows 2000 OS.
Windows 2000 is scheduled for an official launch in San Francisco on February 17, although some PC vendors are planning to ship systems with the new OS around January 24. Masters said that 7,000 applications will be running on Windows 2000 come February 17, and described the new OS as a "seminal product" for the company.
Turning to the productivity applications and developer division, revenue rose to $2.8 billion, up from $2.2 billion a year ago, due particularly to strong sales of Office in Asia. Microsoft's SQL Server database also performed well, Masters said, and the company's groupware product Exchange saw "steady revenue".
Up and coming In Microsoft's consumer and other business unit, the star performer was the company's leisure and education business, Masters said. Overall, the unit saw revenue grow to $872 million, up from $708 million in the second quarter of fiscal 1999. He expects that the company's MSN Web portal will "hit its stride" in the coming year. According to Microsoft estimates, the company's instant messaging service now has more than 5 million users, Hotmail has over 50 million members, and its WebTV service has topped 1 million subscribers.
Today's conference call to discuss the financial results marked one of the first official duties of Microsoft's new chief financial officer (CFO), John Connors, who is only 11 days into his new role. His predecessor, Greg Maffei, unexpectedly resigned towards the end of last month to become chief executive officer of Vancouver, Canada-based Worldwide Fiber.
Looking ahead, Connors advised caution, predicting a gradual adoption of Windows 2000 over the coming year, with the impact of the new OS not being felt in revenue terms until the fourth quarter of fiscal 2000. He said Microsoft's platforms business will probably only experience growth in the low-double digits for the third quarter. However, he was very optimistic that the launch of Windows 2000 will lead to an increase in NT deployment on laptop computers. As for the company's consumer business, he said that by the end of fiscal 2000 - June 30 - revenue should hit $1 billion.
Connors expects that Microsoft's research and development expenses will account for approximately 16 per cent of its net revenue in the third quarter of fiscal 2000. In terms of earnings per share for the third quarter, he advised that analysts' predictions of 41 cents per share is the right figure to stick with.
Legal trouble Included in the company's second-quarter fiscal 2000 results is a one-time charge of around 3 cents per share for the settlement of an antitrust lawsuit with DR-DOS owner Caldera. Microsoft and Caldera last week announced they'd reached an agreement to settle the case, which had been due to come to trial next month.
In today's conference call, Microsoft's new CFO refused to be drawn on the actual amount of money the one-time charge of 3 cents per share equates to, but analysts have speculated it amounts to between $250 million and $275 million. "I'm trying to avoid precision with that number," Connors said.
Caldera had been looking for $1.6 billion in damages from the lawsuit, which it filed against Microsoft in 1996, alleging that the software giant had abused its dominant position in the operating-system market, thus stifling the chances of DR-DOS being able to compete against Microsoft's operating system, MS-DOS.