Microsoft Profits Up, But Miss Wall Street Expectations

Microsoft also warned Thursday that operating income and earnings per share for fiscal year 2003 will be lower than analysts expected due to heavy long-term investments. Shares in Microsoft tumbled in after-hours trading.

For the quarter ended March 31, Microsoft reported net income of $2.74 billion, or 49 cents a share, compared with $2.45 billion, or 44 cents a share, a year earlier.

Analysts surveyed by Thomson Financial/First Call had predicted 51 cents a share.

Microsoft shares closed down 26 cents at $56.37 Thursday on the Nasdaq Stock Market. In after-hours trading, the shares fell to $53.22.

The quarterly net income included an $847 million after-tax gain on the sale of the Expedia travel service and an $806 million after-tax charge related to investment impairments. The Expedia sale resulted in a 15-cent-per-share gain, while the investment impairment resulted in a 14-cent-per-share charge.

Revenue for the quarter was $7.25 billion, up 13.2 percent from the $6.4 billion a year ago.

The company said it was enjoying strong sales of its new Windows XP operating system and was able to drive down costs and boost efficiency.

"We delivered another quarter of solid revenue growth and operating results that exceeded our expectations," said Chief Financial Officer John Connors.

Still, he said earnings per share were down from analysts' expectations, mostly because of changes in the special gains and charges from earlier guidance.

Microsoft also released its guidance for fiscal 2003 for the first time Thursday and while revenue forecasts were consistent with earlier statements, "operating income and earnings per share are definitely lower than the average of analysts out there," Connors said. He did not elaborate. The Thomson Financial/First Call estimate for 2003 is for earnings of $1.87 per share on revenues of $28.9 billion.

Microsoft's senior executives have decided to spend heavily next year on research and development and long-term projects, including the Xbox game system and MSN Internet service--about $800 million more than most analysts had in their financial models, Connors said.

"There was no way for the investment community to anticipate that," he said. "We are going to sacrifice short-term growth for long-term results."

For the first six months of fiscal 2002, Microsoft had net income of $6.3 billion or $1.13 a share on revenue of $21.1 billion, compared with profits of $7.28 billion or $1.31 a share on revenues of $7.28 billion a year ago.

Copyright © 2002 The Associated Press. All rights reserved. The information contained in the AP News report may not be published, broadcast, rewritten or redistributed without the prior written authority of The Associated Press.