Microsoft earnings drop 38pc

23 Apr 2004

Software giant Microsoft has reported a 38pc drop in Q3 earnings as the company took heavy charges related to legal matters and for expenses related to stock-based compensation. However, despite the earnings drop, the Seattle company reported a 17pc increase in revenues on the year to reach US$9.18bn.

Microsoft reported earnings of US$1.32bn, or 12 cents per share, for its fiscal third quarter, which ended March 31. That compares with earnings of US$2.14bn, or 20 cents per share, in the same period a year earlier.

The most recent quarterly earnings included a pretax charge of US$2.53bn, or 17 cents per share, for costs related to legal issues. The company recently reached a US$1.6bn settlement with Sun Microsystems Inc. and received a US$610m fine from the European Commission.

Another pretax charge of US$748m, or five cents per share, was for charges related to stock-based compensation.

“Broad-based demand and solid execution across all our businesses drove outstanding results for the quarter,” said John Connors, chief financial officer at Microsoft. “All of our businesses met or exceeded our expectations this quarter with the Client, Information Worker and Server and Tools businesses growing a combined 17pc. Overall corporate IT spending continued to improve and we expect to see healthy demand through the end of our fiscal year.”

Information Worker revenue grew 18pc over the prior year as Office experienced strong sales across all customer segments. Worldwide retail license sales of Office 2003 since its launch in October 2003 were double those of Office XP over its first five months. Office OEM sales grew 35pc benefiting from increased adoption of Office 2003, including penetration of the Small Business and Professional editions.

Server and Tools grew by 19pc driven by healthy demand for Windows, Exchange, SQL Server, and Visual Studio products. Rapid customer adoption of Windows Server 2003 continued with new licenses growing 31pc.

“Windows Server 2003 is our most successful server operating system product ever with customer license sales doubling any previous version over a comparable period since launch,” said Eric Rudder, senior vice president, Server and Tools business. “It is also rewarding to see customers and partners excited about the recently released Windows Small Business Server 2003 product, as is reflected by our early strong sales and already having 47,000 partners trained to deploy and service the platform.”

In its outlook for the months ahead, Microsoft said that fourth quarter revenue is expected to be in the range of US$8.9bn and US$9.0bn. For the full year the company said revenue is expected to be in the range of US$37.8bn and US$38.2bn.

By John Kennedy