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Microsoft Surprises with Quarterly Report

Blowing Wall Street estimates out of the water, Microsoft Corp. officials on Wednesday announced an 18 percent increase in profits for its fiscal first quarter 2001 over the same period a year ago and then painted a rosy picture for the rest of the fiscal year in terms of Windows 2000 products.

Microsoft announced a $2.58 billion income before accounting change for the quarter, which translates into 46 cents per share, bettering the $2.19 billion and 40 cents per share during the same quarter a year ago. Analyst estimates had the software giant more in the neighborhood of 41 cents a share for 1Q2001 before the accounting change. Strong sales of Windows 2000 products accounted for much of the surprising quarterly performance, according to officials.

Including a one-time $375 million charge for the required adoption of Statement of Financial Accounting Standards No. 133 (SFAS 133), "Accounting for Derivative Instruments and Hedging Activities," Microsoft actually reported earnings of 40 cents per share for the quarter.

John Connors, chief financial officer at Microsoft, said business has been solid across the board. He anticipates income growth to be strong for the remainder of the fiscal year as Windows 2000 Professional continues to roll out around the enterprise and Windows ME makes strides in the consumer area. "While we remain guarded about worldwide economic conditions, we are extremely enthusiastic about our Windows 2000 generation of server products," Connors says. He said licensing of 2000 Professional now accounts for 30 percent of all 32-bit operating systems the company ships.

Connors also noted a major reason for the better than expected growth in the quarter was the early completion of the merger of Titus Communications with Jupitor Telecommunications, as well as sale of TransPoint to CheckFree. Microsoft has interests in both of the new companies. Completion of the deals was not expected until 2001. – Ted Williams

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.

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