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Earnings Watch

Microsoft's 4th-Quarter Profit Rose 81%

Stock Price Slips As Earnings Miss Estimates

By David A. Vise
Washington Post Staff Writer
Friday, July 23, 2004; Page E05

Microsoft Corp. yesterday reported that fiscal fourth-quarter profit rose 81 percent from the same period last year as sales increased 15 percent, showing that the software giant still can show solid growth despite its mammoth size. But the results were slightly below analysts' expectations, prompting a dip in the company's stock price.

The company -- which this week announced plans to pay a $3-a-share special dividend, double its regular dividend and repurchase up to $30 billion in stock -- reported net income in the quarter ended June 30 of $2.7 billion (25 cents a share) on revenue of $9.3 billion. That compared with net income of $1.5 billion (14 cents) on revenue of $8.1 billion in the same period last year.

Microsoft reported income in the quarter ended June 30 of $2.7 billion (25 cents a share) on revenue of $9.3 billion. (John Froschauer -- AP)

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Excluding a variety of one-time items, Microsoft posted earnings of 28 cents a share in the quarter, a penny below Wall Street's consensus estimate.

Microsoft announced its results after the stock market closed. In after-hours activity, the stock fell about 60 cents to $28.26. The fall was cushioned by the announcement earlier this week about the $3-a-share dividend.

"This has been a great year and a fantastic quarter for Microsoft," said Microsoft Chief Financial Officer John Connors. "We had a great quarter with 15 percent revenue growth as all of our businesses met or exceeded our expectations."

For the fiscal year ended June 30, Microsoft had sales of $36.8 billion, a 14 percent increase over the same period last year. Net income for fiscal 2004 was $8.2 billion (75 cents), compared with $7.5 billion (69 cents) in the 2003 fiscal year.

Microsoft's MSN subsidiary -- which competes with Dulles-based America Online Inc., Yahoo Inc., and Google Inc. -- posted $121 million in operating profit in fiscal 2004, compared with $690 million in operating losses the prior year.

"We've been able to drive our business to profitability while continuing to invest in making the MSN customer experience the best on the Web," David Cole, senior vice president of the division, said in a statement. Microsoft also projected that increased sales of the Xbox game player would help boost revenue in fiscal 2005, when it anticipates revenue between $38.4 billion and $38.8 billion.

Connors said earnings in fiscal 2005 would be lower than previously projected due to the $3-a-share dividend, which will cost the company more than $32 billion.

Microsoft has about $60 billion in cash and has resolved many legal issues that it had faced, making it possible for the company to satisfy investors' clamoring for it to do something with the enormous cash pile. Still, while Microsoft continues to dominate numerous computer segments, including the operating systems that run personal computers, sales growth has slowed as the company has become larger.

Microsoft officials said shipments of personal computers in the quarter were up about 12 percent in the industry. During the quarter, new commercial customers for the Microsoft Office Systems products included The World Bank and Xerox Corp., the company said.

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