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Sat, Jul 24, 2004 - Page 12 News List

Microsoft quarterly sales rise 15%

GROWTH SURGE The software giant closed out its fiscal year with a bang, reporting sales of US$9.29 billion for the final quarter, but expressed caution about next year

NY TIMES NEWS SERVICE , NEW YORK

Microsoft reported strong quarterly gains in sales and profits on Thursday, showing that it is one of the winners in the uneven recovery that the technology sector is now experiencing.

Microsoft, the world's largest software company, said sales rose to US$9.29 billion, an increase of 15 percent from the year-earlier quarter, and about US$300 million higher than Wall Street analysts had expected.

As proof that the company's prospects for growth remain bright, Microsoft executives pointed to the surge in sales for the period, the company's fourth quarter, and for the company's fiscal year ended last month, with full-year revenue up 14 percent, to US$36.8 billion.

"In this year, we grew by nearly US$4.7 billion, or almost the equivalent of two eBays or two Yahoos," John Connors, Microsoft's chief financial officer, said in an interview. "In our books, that's considered a growth company."

But the company issued a very cautious outlook for growth in the current year, saying it expected sales in its next fiscal year to be US$38.4 billion to US$38.8 billion -- growth of 5 percent or less.

Industry analysts note, however, that Microsoft has a history of issuing very conservative projections and then routinely surpassing them comfortably. A year ago, Microsoft's guidance for sales growth in its current fiscal year was 6 percent to 8 percent, or only about half the 14 percent increase that it achieved.

"Microsoft is really clipping along nicely, not suffering like other software companies," said Charles di Bona, an analyst at Sanford C. Bernstein & Co.

"Yes, its guidance is low for this year, but I suspect there is room to run here, just as there has been in the past," he said.

Microsoft said that its quarterly net income rose more than 80 percent, to US$2.69 billion, compared with US$1.48 billion in same quarter a year ago. Yet the actual year-to-year comparison was less impressive than it appeared. This year's quarter included a one-time US$208 million tax benefit, while the year-earlier quarter included a US$750 million charge for the settlement of a private antitrust lawsuit brought by Time Warner.

Microsoft also said Thursday that financial preparations for its plan, announced on Tuesday, to hand as much as US$75 billion to shareholders over the next four years had reduced earnings in the quarter.

And it cut its profit guidance for the current year by about US$0.10 a share because its investment

income will decline after a large slice of its US$60.6 billion in cash is distributed to shareholders.

Microsoft earned US$0.28 a share in the quarter, excluding charges of US$0.05 a share for stock-based compensation and the US$0.02 gain from the tax benefit. On that basis, Wall Street analysts expected Microsoft to earn US$0.29 cents a share, according to Thomson First Call, a research firm.

Connors explained that as the company moved money out of longer-term fixed-income securities to prepare for the cash distribution to shareholders and in anticipation of an increase in interest rates, it had to sell its hedging contracts on those securities. Analysts estimated the losses from those transactions at US$0.025 a share.

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