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Microsoft quarterly revenue tops $10B -- a record

Posted on: Friday, 23 January 2004, 06:00 CST

SEATTLE -- Microsoft, riding stronger sales of personal computer software, on Thursday reported record quarterly revenue.

But that wasn't enough to keep the software giant's profits from shrinking -- mostly because of charges stemming from changes to its employee stock-option plan.

Microsoft reported net income for its fiscal second quarter of $1.6 billion, or 14 cents a share, down from $1.9 billion, or 17 cents a share, in the year-ago period. Excluding the charge for stock-based compensation, Microsoft earned 34 cents a share, beating analysts' projections of 30 cents.

Revenue for the quarter jumped 19%, to $10.2 billion -- up from $8.5 billion in the year-ago period.

''We are very pleased with our first $10 billion quarter,'' said John Connors, Microsoft's chief financial officer. ''Consumer and corporate demand for PCs continued to exceed our expectations.''

Microsoft's results follow recent gains at other tech giants, including IBM and Intel -- underscoring tech's recovery from its three-year slump. Microsoft announced its results after the stock market closed. In after-hours trading, its shares fell 21 cents to $27.80.

Connors issued an upbeat estimate for the current quarter, which ends in March. For its fiscal third quarter, Microsoft expects net income of 28 to 29 cents a share, excluding stock-based compensation expenses. That is based on revenue of $8.6 billion to $8.7 billion. That's slightly higher than the 27 cents a share, on revenue of $8.5 billion, analysts have been projecting.

In a conference call, analysts peppered Connors with questions about a bigger-than-expected drop in deferred revenue from its subscription licensing program. The decline could signal that the software maker continues to face resistance to the licensing program adopted two years ago, said L. Alan Davis, tech analyst at McAdams Wright Ragen.

Some business users object to the plan because they don't want the frequent upgrades it requires.

Microsoft is counting on selling more subscription licenses to small and midsize companies to help sustain revenue and profit growth.

Connors told analysts that the company is trying to do a better job explaining the subscription plan's benefits -- while also developing products that make it worthwhile. Microsoft also faces a rising challenge from Linux, the open-source code operating system developed by volunteer programmers.

''It's real clear Linux is the most significant competitor to the Windows platform,'' Connors told analysts. Still, he said, Microsoft salespeople are ''better equipped to talk about the benefits of our platform vs. Linux.''

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