Microsoft Sees Revenue Rising in Fourth Quarter, Then Flattening

Revenue for software giant Microsoft (MSFT) should rise by about $500 million in the fourth quarter of fiscal 1999 from the third quarter but flatten out in the first quarter of 2000, CFO Greg Maffei said.

Maffei gave his guidance to analysts in a conference call after the Redmond, Wash., company reported third-quarter earnings of 35 cents a share, beating the 22-analyst First Call estimate of 32 cents and moving up from 25 cents a year ago. Total revenue hit $4.33 billion, up 15% from $3.77 billion a year ago. Maffei noted that sales in Asia, particularly from PC sales in Japan, and strong Windows NT Workstation orders helped boost profits.

An investment gain of more than $350 million in the quarter also helped ease $400 million in revenue linked to Office 2000 upgrade coupons the company had to push out to subsequent quarters. But in the current quarter, Maffei cautioned that investment income was likely to fall back to around $100 million.

Part of the fourth-quarter revenue boost should come after Microsoft ships its Office 2000 product in June, he said. Customers should be sending in their coupons for free upgrades to Office 2000, allowing Microsoft to recognize about $300 million of the deferred revenue in the fourth quarter. The remaining $100 million from Office 2000 coupons should be recognized over subsequent quarters, he said.

Despite recent jitters over PC demand, Maffei said he believes the PC market "remains fundamentally healthy." He said the PC market has seen seasonal declines but year-over-year continues to show improvement, rising 29%. Microsoft continues to be "most driven by increases in unit shipments." Aside from large sellers, which had a hard quarter, he says demand has been good, particularly from smaller manufacturers that sell to small- and medium-sized businesses.

Against database giant Oracle (ORCL), Maffei also noted Microsoft has been winning customers with its SQL Server 7.0 database product.

Still, Maffei remained "guarded about growth in 1999, given the likelihood that organizations will lock down their systems infrastructures due to year 2000 concerns." He forecasts first-quarter 2000 revenue to be flat from the fourth quarter, causing a "slight downtick of a few pennies in earnings per share vs. Q4," or year-over-year growth in "the low to mid-20s" percent range.

He said the second quarter had more risks because it was also the last quarter for Y2K fixes and a slowdown in Windows NT 4.0 as sales channels for the product dry up as that will be the last quarter for Windows NT 4.0.

-- Medora Lee

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Elsewhere in technology earnings, enterprise software company PeopleSoft (PSFT) reported first-quarter earnings of 3 cents a share, topping reduced estimates by a penny. The 21-analyst estimate called for 2 cents vs. the year-ago 13 cents.

The Pleasanton, Calif.-based company said revenue was $305.4 million, up 10% from a year ago and within the $275 million to $305 million range it predicted when it preannounced March 31. Service revenue rose 62% from a year ago to $228.3 million and accounted for 75% of total revenue, but the more important license revenue slipped to $76.6 million from $136.9 million a year ago. Analysts often look at the license revenue, which comes from the company's core business of selling software and generally has higher margins than services.

Today, PeopleSoft shares finished down 1/8 at 12 1/8, the lowest level since April 1996.

-- Medora Lee

Major Indices INDEX CHANGE % VALUE YR TO DATE Dow 8.02 +0.1% 10,448.55 +13.8% S&P 500 16.69 +1.3% 1306.17 +6.3% Nasdaq 64.03 +2.7% 2409.64 +9.9% Russell 2000 2.93 +0.7% 415.34 +1.6% TSC Internet 35.14 +6.3% 595.95 +46.6% TREASURY BOND CHANGE VALUE YIELD 30-Year 2/32 96 4/32 5.515%

In other postclose news (earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews

Amgen (AMGN) produced first-quarter earnings of 46 cents a share, up from 35 cents a year ago and 2 cents better than the 25-analyst estimate. The biotech bellwether said it expects sales of Epogen to grown in the "low 20% range" for the rest of 1999 and for Neupogen sales to be in the "high single-digits." The company said it sees full-year earnings of $1.80 to $1.85 a share vs. the current estimate of $1.85. Amgen was quoted at 66 in after-hours trading vs. a New York close of 69.

Borg-Warner Security (BOR) reported first-quarter earnings of 23 cents a share, 2 cents shy of the five-analyst expectation but up from the year-ago 16 cents. The company also said it plans to buy back 4.35 million of its shares at $18.375 each, or $79.9 million, from a group of Merrill Lynch (MER) entities.

Cadence Design Systems (CDN) reported first-quarter earnings of 31 cents a share, a penny better than the 14-analyst outlook and up from the year-ago break-even. The company warned that it sees slower revenue and earnings growth for the rest of 1999, and that the growth rate for its services revenue will be hurt by an emphasis on accepting "higher-margin engagements."

Central Hudson Gas (CNH) produced first-quarter earnings of $1.09 a share, including a "favorable" insurance settlement, vs. $1.06 a year ago. The company did not provide operating results excluding the one-time item. The two-analyst estimate was for earnings of $1.12.

Granite Construction (GVA) forecast its first-quarter earnings will come in around 7 cents to 10 cents a share vs. the six-analyst estimate of 3 cents.

Intergrated Device Technology (IDTI) reported fourth-quarter earnings of 10 cents a share, including a one-time gain, vs. 2 cents a year ago. The company did not provide results excluding the gain. The three-analyst estimate was for earnings of a penny per share.

Qualcomm (QCOM) reported second-quarter earnings, excluding charges, of 82 cents a share, up from 25 cents a year ago and well in excess of the 15-analyst consensus of 59 cents. Including the charges, the company lost 59 cents a share.

RealNetworks (RNWK) reported a first-quarter loss of 2 cents a share, a penny better than the 10-analyst estimate and better than the 7-cent shortfall of a year ago. The Internet audio and video provider set a 2-for-1 stock split.

Skytel (SKYT) reported first-quarter earnings of 5 cents a share, up from a loss of $1.29 a year ago and a penny ahead of the 13-analyst estimate. However, the company said slower subscriber growth will pressure earnings for the rest of the year.

Washington Mutual (WM) set a 20 million-share stock buyback plan and reported first-quarter earnings of 79 cents a share, topping the 16-analyst view by 2 cents and moving ahead of the year-ago 68 cents.

In other earnings news:

Upside Surprises
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts
Advanced Fibre Communications (AFCI)	1Q	4c	3c	15c	11
Bell & Howell (BHW)	1Q	23c	20c	17c	4
E.W. Blanch (EWB)	1Q	70c	63c	53c	8
Boston Scientific (BSX)	1Q	25c	21c	15c	29
Brio Technology (BRYO)	4Q	5c	4c	-23c	4
Broadcom (BRCM)	1Q	19c	14c	9c	11
Choicepoint (CPS)	1Q	57c	55c	50c	6
Citation (CAST)	2Q	37c	36c	47c	5
Encad (ENCD)	1Q	3c	-5c	-6c	4
General Instrument (GIC)	1Q	20c	19c	-40c	16
GenRad (GEN)	1Q	20c	19c	5c	1
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts
Georgia Gulf (GGC)	1Q	8c	6c	52c	6
Hambrecht & Quist (HQ)	2Q	98c	63c	60c	2
Hexcel (HXL)	1Q	19c	15c	43c	6
Lattice Semiconductor (LSCC)	4Q	49c	47c	58c	17
Level One Communications (LEVL)	1Q	28c	27c	10c	10
Medicis Pharmaceutical (MRX)	3Q	33c	32c	24c	6
Mesa Air Group (MESA)	2Q	10c	5c	-47c	3
99 Cents Only Stores (NDN)	1Q	25c	24c	19c	5
PBOC Holdings (PBOC)	1Q	30c	16c	18c	2
Pharmaceutical Product Development (PPDI)	1Q	26c	25c	12c	10
Proxim (PROX)	1Q	15c	14c	8c	8
Remedy (RMDY)	1Q	12c	9c	8c	9
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts
RF Micro Devices (RFMD)	1Q	25c	19c	-11c	8
C.H. Robinson (CHRW)	1Q	26c	23c	20c	8
Saga Software (AGS)	1Q	17c	16c	17c	6
Santa Cruz Operation (SCOC)	2Q	11c	9c	9c	2
Sauer (SHS)	1Q	30c	26c	27c	3
Secure Computing (SCUR)	1Q	-30c	-32c	3c	5
Siebel Systems (SEBL)	1Q	24c	15c	11c	14
Stryker (SYK)	1Q	34c	33c	37c	13
Teradyne (TER)	1Q	20c	19c	58c	13
TJ (TJCO)	1Q	45c	40c	36c	5
VWR Scientific (VWRX)	1Q	25c	24c	27c	6
Xoom.com (XMCM)	1Q	-24c	-26c	-17c	3

Downside Surprises
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts
Century Aluminum (CENX)	1Q	-14c	-11c	29c	4
Comshare (CSRE)	3Q	-15c	2c	1c	2
Crawford (CRDB)	1Q	20c	23c	23c	1
HMT Technology (HMTT)	1Q	-23c	-7c	31c	4
Katy Industries (KT)	1Q	20c	27c	23c	1
Lillian Vernon (LVC)	4Q	7c	11c	32c	1
Madge Networks (MADGF)	1Q	-20c	-18c	7c	1
Molex (MOLX)	3Q	29c	30c	29c	8
Objective Systems Integrators (OSII)	3Q	-17c	-3c	-5c	4
Praegitzer Industries (PGTZ)	3Q	10c	12c	14c	6
Rainbow Technologies (RNBO)	1Q	10c	16c	25c	3
Smartflex Systems (SFLX)	1Q	-16c	-13c	13c	3

In-Line Reports
Company	Qtr	EPS	First Call View	Yr. Ago EPS	Number of Analysts
ADVO (AD)	2Q	28c	28c	24c	6
Amresco (AMMB)	1Q	21c	21c	35c	10
Covance (CVD)	1Q	22c	22c	18c	14
Crown Pacific Partners (CRO)	1Q	25c	25c	25c	5
Easco (ESCO)	1Q	18c	18c	15c	3
Federated Investors (FII)	1Q	31c	31c	25c	4
Hutchinson Technology (HTCH)	2Q	54c	54c	-73c	6
Lee Enterprises (LEE)	2Q	27c	27c	28c	2
Outdoor Systems (OSI)	1Q	2c	2c	1c	4
Robert Half International (RHI)	1Q	38c	38c	31c	14
TriStar Aerospace (TSX)	2Q	28c	28c	22c	6
UST (USTB)	1Q	40c	40c	43c	8

Mergers, acquisitions and joint ventures

Bergen Brunswig (BBC) and PharMerica (DOSE) said a California court denied a request by PMR (PMRP) to halt the companies' planned merger.

Telecom Italia (TI) agreed in principle to merge with Deutsche Telekom (DT) in a stock swap. But TI said there are numerous large issues outstanding, including how the German state might reduce its voting rights in the combined company. Germany, which now owns 72% of DT, said it has no intention of trimming its voting rights, according to Dow Jones.

Offerings and stock actions

LSB Financial (LSBI) approved a 3-for-2 stock split.

UroCor (UCOR) set a $10 million repurchase program.

Miscellany

The New York Stock Exchange seems to be planning a commensurate response to the Nasdaq Stock Market's planned expansion of trading hours. NYSE Chairman Richard Grasso told CNBC that it would not make sense for one major equity market to be open while another remained closed, suggesting that the Big Board may accelerate its plans for longer hours. CNBC reported yesterday that the Nasdaq would like to offer an evening trading session as soon as this summer.

FirstMiss Steel, a unit of ChemFirst (CEM), said it will discontinue steel-melting operations in Hollsopple, Pa., and look for a buyer. About 100 job cuts are expected as a result of the closing.

Gables Residential Trust (GBP) named Chris Wheeler chief executive, replacing Marc Bromley.

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