Microsoft Boots Up Profits

Strong demand for Windows 98 boosted Microsoft Corp.'s first-quarter net income to $1.68 billion, a 154 percent increase over profits of $663 million a year ago.

The profits work out to 62 cents a share on a diluted basis for the quarter, 13 cents above the 49-cent consensus estimate by analysts surveyed by First Call. Per-share net income a year ago was 25 cents a share, reflecting a two-for-one stock split last February.

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The figures were aided by a one-time gain of $160 million for the sale of software subsidiary SoftImage in the quarter ended Sept. 30 and a write-off of $296 million in 1997 related to the purchase of WebTV Networks.

Even when taking those charges into account, profits were $1.52 billion or 56 cents a share, up 83 percent from $959 million or 26 cents a share a year ago.

Revenues for the quarter reached $3.95 billion, up 26 percent from $3.13 billion in the same quarter of 1997.

Microsoft had warned that the Asian financial crisis might hurt sales, but that turned out not to be the case.

"Demand was stronger than anticipated due to the successful launch of Microsoft Windows 98 in Japan and several European countries," said Greg Maffei, chief financial officer.

Maffei said that while revenue growth has slowed for the company's business software suite Office 97, it still posted strong results.

Microsoft brought out Windows 98, its upgrade for its key operating system that runs most personal computers, on June 25. To date, more than 10 million copies have been sold, either as retail packages or with new computers.

"The retail acceptance of Windows 98 was quite strong in Japan as it provided consumers with new functionality to upgrade their PCs," said Pieter Knook, Microsoft's vice president for Asia. "While we're pleasantly surprised by the strength of business this past quarter, the outlook remains tepid."

Microsoft reported results as the government's antitrust case against it proceeded through its second day in Washington, with the software company sayinit had done nothing wrong and was not obliged to take it easy on competitors. In opening arguments on Monday, government lawyers presented evidence that questioned the credibility of Microsoft Chairman Bill Gates, and said the company sought to bully its competitors.