Microsoft net up 60%, warns on growth

The quarter’s strong results, however, made its usual warnings more difficult to sell. "We’re going to have a hard time making people believe what we think — that growth will be slower next year," said Greg Maffei, Microsoft’s chief financial officer.

For the quarter ended June 30, Microsoft said net income was $ 2.2 billion, or 40 cents a diluted share, compared with $ 1.36 billion, or 25 cents a diluted share in the year-earlier quarter. Revenue hit $ 5.76 billion, up 39% from $ 4.15 billion lastyear. Analysts had forecast earnings of 36 cents a share.

The results were released after markets closed. Microsoft’s shares rose slightly to $ 99 in after-hours trading, according to Instinet. In regular Nasdaq Stock Market trading Monday, Microsoft shares closed at $ 98.375, down $ 1.0625.

Microsoft’s shares rose last week in anticipation that the company may create a "tracking stock" to separately reflect its Internet properties. Maffei Monday said the company is "reviewing such a structure," but is planning no immediate announcement. "It is our intention to be a very strong player in the Internet space and we are open to interesting partnerships and structures," he said.

As an example, Maffei pointed to Microsoft’s deal with Ticketmaster Online CitySearch Inc., also announced Monday. In the deal, Microsoft agreed to sell most of its sidewalk local web guides in return for stock and warrants that could give Microsoft a stake of between 9% and 13% in Ticketmaster.

Microsoft’s quarterly results werecomplicated by a number of one-time items and accounting changes the company recently adopted. For one, Microsoft said revenue increased by $ 250 million because of a shift in the way it delivers software, toward direct sales to resellers and customers and away from shipments of packaged goods to distributors, which tends to reduce the risk of returns.

A change in the way Microsoft accounts for "unearned revenues" added $ 80 million to fourth-quarter revenue. Unearned revenues are set aside to cover future upgrades and customer support, but the company recently reduced the amount, effectively increasing current revenue. Microsoft also realized $ 200 million in revenue for deliveries of Office that were promised in the previous quarter.

Microsoft also had some unusual expenses, notably a $ 80 million charge for legal expenses incurred in the company’s numerous court challenges. The net result of all the items, Maffei said, was that the quarter wasn’t quite as strong as the numbers may suggest. "It was avery strong quarter, though the 39% may overstate that in terms of looking forward."

For its first quarter of fiscal 2000, Maffei said revenue will decline slightly from the fourth quarter and increase about 20% from the year-earlier period. Per-share earnings will similarly rise about 20%, he said, excluding one-time sales in both quarters. For fiscal 2000 as a whole, Maffei said he expects revenue growth in the "high teens."

Microsoft said its Office and Back-office "productivity" applications were the biggest drivers of revenue growth, with sales increasing 48% from a year earlier. The company said Office 2000, the new suite released in June, had a strong launch in many countries. Microsoft also said sales were strong for its Back-office products, including the Exchange e-mail server ad the SQL Server database system.

In its online businesses, Microsoft said advertising revenue rose "substantially" while subscription revenue increased moderately. Revenue for the Consumer & Commerce Group, which alsoincludes revenue from other businesses, increased to $ 593 million, up 26% from last year.

Microsoft’s operating profit margin slipped slightly from recent quarters, but remained at 50.4% of revenue, up from 45% in last year’s fourth quarter. Maffei said increased investments in research and development, along with increased compensation costs, will hold down expansion of margins in the future.

Microsoft’s cash hoard, meanwhile, declined to $ 17.2 billion, reflecting the company’s $ 5 billion investment in AT&T Corp. and other large investments.