Microsoft Sees Revenue Rising in Fourth Quarter, Then Flattening

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Revenue for software giant

Microsoft

(MSFT) - Get Report

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. That should boost earnings by about "a nickel or so," Maffei said. 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) - Get Report

, 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 first 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

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

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) - Get Report

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) - Get Report

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) - Get Report

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) - Get Report

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) - Get Report

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) - Get Report

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:

Mergers, acquisitions and joint ventures

Bergen Brunswig

(BBC) - Get Report

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) - Get Report

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) - Get Report

, 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.

Staff reporters John J. Edwards III and Aaron L. Task contributed to this story

.