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  •   Microsoft Earnings Jump 58 Percent

    By Mark Leibovich
    Washington Post Staff Writer
    Wednesday, October 21, 1998

    As it brawled with antitrust enforcers in a D.C. courtroom yesterday, Microsoft Corp. continued its bottom-line success in the marketplace.

    The Redmond, Wash., software giant's operating earnings in the quarter that ended Sept. 30 jumped a better-than-expected 58 percent due to strong sales of its Windows operating systems for personal computers and business networks.

    Microsoft earned $1.68 billion, which included a $160 million one-time gain on the sale of a business unit that makes a product called Softimage. In the same period last year, Microsoft earned $663 million, which included a $296 million write-off related to the purchase of WebTV Networks Inc.

    Excluding these one-time adjustments, Microsoft earned $1.52 billion (56 cents a share) in its fiscal first quarter, compared with $959 million (36 cents a share) in the same period a year ago. Analysts surveyed by First Call Corp. predicted the company would earn 49 cents a share. Revenue increased to $3.95 billion, from $3.13 billion last year.

    "We're always mindful of the power of the Department of Justice, but there's no reason to doubt the consistency of Microsoft's business performance," said Christopher Galvin, an analyst at Hambrecht & Quist in San Francisco.

    The company announced its earnings after the markets closed. During the day, Microsoft's shares dropped $2.68, to $100.25.

    Microsoft attributed its solid quarter largely to the June unveiling of the Windows 98 operating system. "Demand was stronger than anticipated due to the successful launch of Microsoft Windows 98 in Japan and several European countries," Microsoft's chief financial officer, Greg Maffei, said in a statement.

    Microsoft's better-than-expected performance continued the recent run of improved quarterly earnings by computer-industry leaders such as Intel Corp. and Compaq Computer Corp. The trend continued yesterday when International Business Machines Corp. reported a 10 percent increase in third-quarter earnings, beating expectations.

    Armonk, N.Y.-based IBM, the world's largest computing company when ranked by revenue, said it earned $1.46 billion, or $1.56 a share, in the quarter ended Sept. 30. That compares with $1.35 billion, or $1.35 a share, in the same period a year ago. IBM was expected to earn $1.53 a share, according to First Call.

    But the behemoth also warned that the precarious global economic situation could hinder its growth in the near term. It said it was particularly concerned about international corporations spending less on information technology.

    "We are facing a number of significant short-term issues," chief executive Louis V. Gerstner Jr. said in a statement.

    He cited "an uncertain global economic environment, ongoing weakness in some parts of Asia and Latin America, and continued price pressures in semiconductors."

    IBM's high-flying technology services division continued to grow rapidly. Its revenues grew to $5.8 billion, compared with $4.7 billion a year ago. Overall, IBM reported third-quarter revenues of $20.1 billion, compared with $18.6 billion in the third quarter of last year.

    IBM released its earnings after markets closed. Its shares had finished the day down $1.50 at $137.87.

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