Microsoft: Record Quarterly Results an 'Anomaly'

Casting cold water on excited investors, Microsoft officials rushed to downplay the company's most recent financial results, a record quarter in which the software giant posted $4.05 billion profit on revenues of $7.75 billion. But Microsoft CEO Steve Ballmer said Sunday that the financial surge was "a one-time anomaly" caused largely by last-minute software license sign-ups. So even though the company was able to double its earnings for the quarter year-over-year, the current quarter is going to be a let-down by comparison. More troubling to investors, however, was news that Microsoft is concerned about the strength of the overall PC market in the short term.

"We think the rate of growth in the personal computer industry, which is an important aspect for us, will be slow \[in the current quarter\], and we're making our planning assumptions around that," Ballmer said. "But at the end of the day we are so bullish, so optimistic, so excited about the future of technology that we're probably willing to invest a little bit more than people are who might be a little bit more sensitive to the down economy."

However you view the company's blowout financials last quarter, a few facts emerge. First, Microsoft's controversial Licensing 6.0 program, which went into effect in July, is a success, despite some customer concerns that the plan will ultimately cost them more money. And with Windows XP licenses nearing the 70 million mark--without even counting corporate licensing, no less--the company has an OS hit of unprecedented proportions on its hands. Other aspects of Microsoft's sales strategy aren't doing so well, however. The Xbox game console undersold company projections last quarter by a whopping $100 million, though the company still maintains that it will sell 9 to 11 million units through the end of 2002. And Judge Colleen Kollar-Kotelly is expected to deliver her landmark ruling in the Microsoft antitrust case this quarter, a ruling that could very well include strict sanctions that might further curtail the company's earning potential.

In short, Microsoft faces many of the same issues it faced a year ago. The difference, of course, is that the company is in dramatically better financial shape today and better able to fend off any upcoming problems. With a year-over-year operating profit increase of 40 percent and net income which more than doubled in the same time period, Microsoft is redefining terms such as "software giant" and "monopolist." The company, quite simply, is unmatched in this, and perhaps any other, industry.

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