Microsoft Boosts Profits But Misses Target

Microsoft announced Thursday revenue of $7.25 billion for the quarter ended March 31, 2002 and net income of $2.74 billion. However, the company's earnings per share were 49 cents, which came in below Wall Street's consensus estimate of 51 cents a share. Microsoft had originally projected between 50 cents and 51 cents a share.

Microsoft's numbers were impacted by several write-offs and other factors, including an $847 million after-tax gain on the sale of e-commerce travel site Expedia to USA Networks and an $806 million after-tax charge related to investment impairments to AT&T Broadband. Microsoft's diluted earnings per share were affected by a 15-cent gain on the sale of Expedia and 14-cent investment impairment charge as noted above.

A shortfall in sales was attributed to slow sales of the new video game system Xbox overseas. However, Microsoft reported "robust sales" of its newest operating system, Windows XP, and more than 1 million unit shipments of its Web services software Visual Studio .Net and the .Net Framework.

"We delivered another quarter of solid revenue growth and operating results that exceeded our expectations," said Microsoft CFO John Connors in a statement. "Desktop platform sales have been excellent on the strength of Windows XP--both in the enterprise and in the home."

Microsoft officials said the company's desktop platforms revenue grew 11 percent year over year. In the six months since the Windows XP launch, the operating system has sold more than 32 million copies through retail outlets and computer manufacturers, Microsoft officials say.

"This quarter Windows XP shipped on nearly 60 percent of all new PCs, which represents a faster penetration than any of our previous operating systems," said Jim Allchin, group vice president of the platforms division at Microsoft, in a statement.

Despite progress with Windows XP and reduced prices for Xbox overseas, Microsoft officials gave a cautious outlook for the next quarter and fiscal 2003. For the fiscal fourth quarter ending June 30, 2002, Microsoft is expecting revenue in the range of $7 billion and $7.1 billion and diluted earnings per share is expected to be 41 cents or 42 cents, according to the company. Wall Street analysts had estimated Microsoft would earn 44 cents a share on revenue of approximately $7.65 billion.

For fiscal 2003, Microsoft is projecting revenue in the range of $31.5 billion and $32.4 billion and diluted earnings per share in the range of $1.89 to $1.92.