Microsoft Revenue Up, Misses Estimate

At a time when many of its competitors are seeing their year-over-year revenue fall, Microsoft Corp. said yesterday that it was bringing in more money -- only not as much as investors had expected.

The Redmond, Wash.-based software maker said its revenue was $7.25 billion in the three months ending March 31. That was 13 percent higher than its revenue of $6.4 billion in the same quarter a year ago. But it missed the $7.34 billion consensus estimate of analysts surveyed by First Call/Thomson Financial, causing investors to dump its shares and other high-tech stocks in extended trading. Microsoft stock closed at $54.90 in after-hours trading, down from $56.37 in the regular session.

Scott Boggs, Microsoft's corporate controller, said the company's performance reflects the struggling state of the world's economies. Boggs said Microsoft has been most affected by corporate customers who have been stingy in spending on information technology, bringing down revenue from enterprise software and services.

He added that the company, like other software makers, had suffered from the yearlong decline in PC shipments but that it was optimistic that "it appears we may be seeing the bottom" of this trend.

"All in all we were very pleased with this result, especially as compared with the challenges others in our industry have faced in these tough times," he said.

The company said profit was $2.74 billion (49 cents a share), compared with $2.45 billion (44 cents) a year earlier.

The numbers include a charge of $806 million (about 14 cents) for investment impairments, and a gain of $847 million (15 cents), from the sale of online travel service Expedia to USA Networks Inc.

Without those one-time items, profit would have been around $2.7 billion.

Microsoft said all of its major lines of business -- the Windows XP operating system, MSN Internet service and Xbox game console -- had grown last quarter, although not as fast as some had hoped.

The international launch of Xbox, for instance, has had some "hiccups," according to Charles Di Bona, an analyst with Sanford C. Bernstein. Xbox sales in Japan and Europe weren't as high as predicted, and the company said yesterday that it would lower its prices to try to encourage more consumers to try the technology.

Scott McAdams, an analyst with McAdams Wright Ragen, questioned Microsoft's strategy of continuing to pour money into such longer-term investments in this economic climate. While historically this strategy has paid off, he said, recently "it looks like returns are getting a little marginalized here."

Also this past quarter, Microsoft made good on its "trustworthy computing" promise and sent all its Windows developers back to school for a half-day lesson in the basics of computer security. It ordered everyone in that division to spend the month of February on a line-by-line code review and testing of its operating system for flaws that hackers might exploit.

The effort was prompted by an unusual memo written by Chairman Bill Gates declaring that security would now be a priority over new features.

Financial analysts said that although the security overhaul will require significant resources, it is not expected to directly affect the company's bottom line.

Microsoft offered conservative estimates for fiscal 2003, with revenue in the range of $31.5 billion to $32.4 billion and earnings between $1.89 and $1.92 a share.