Microsoft exceeds sales expectations, but business sales slowing

Microsoft Corporation announced Thursday that it had earned $2.39 billion on revenues of $5.6 billion for the quarter ended March 31, an increase of 23% over the same quarter a year ago. Microsoft exceeded analyst expectations yet again, which its been doing steadily now for over eight years. But CFO John Connors warned that future growth this year would likely fall to the single digits, due to a declining demand for personal computers and PC products. And though Microsoft also has a history of questioning future growth potential, Connors' comments were taken to heart this time; analysts had already been downgrading expectations for the rest of 2000.

"OEM revenue was light as demand for business PCs remained slow in the quarter, and we remain guarded about near-term growth," Connors said. "However, PC demand appeared to pick up late in the quarter, and with the launch of Windows 2000, we are excited about the opportunity to help customers migrate to this new generation of platform products."

Indeed, Windows 2000 was the shining star of the quarter, with over 1.5 million units sold since its release in February. Microsoft cites corporations such as Wells Fargo, General Motors, Ford Motor Company, Siemens and Aventis, which are already deploying Windows 2000 and Active Directory.

"We already have exceeded 1.5 million Windows 2000 shipments since the launch, and feedback from customers has been incredible," says group vice president Jim Allchin. "Windows 2000 is the ideal platform for business on the Internet -- whether accessing content, creating content, or hosting applications and content. It takes advantage of today's state-of-the-art hardware, from small mobile devices to the largest e-commerce servers with the dependability that customers expect."

During a conference call with reporters, Connors also singled out Microsoft Office (a "core franchise") as a major contributor to the bottom line. Windows sales were up only 14%, a low number that was largely blamed on Intel's inability to meet demand for the high-end PC chips that consumers desire. Connors says that demand for Windows will grow next quarter once Intel catches up with demand.

Connors also noted that Microsoft now has over $21.2 billion in cash and an investment portfolio worth $21.3 billion. "The valuations of a number of our positions have gone up quite a bit in the last six months," he said

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