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Microsoft Beats the Street, and Big

Plus, another look at Internet highfliers.


(MSFT) - Get Free Report

has been in headlines lately mostly for its battle with the

Justice Department

, but a strong second-quarter earnings report should have Bill Gates smiling for at least one day.

Microsoft earned 73 cents a share for the fiscal second quarter ended Dec. 31, easily besting the 59 cents analysts expected and far surpassing the year-ago quarter's 42 cents. Microsoft ended New York trading up 5 7/8 at 155 5/8, but has surged to the 164 1/2 area in after-hours trading, according to

Mr. Stock


Catching Merger Mania

High speed meant another day of strong gains for the high-tech sector, which got caught up in news of


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planned buyout of





Nasdaq Composite Index

ended the day up 60 points, or 2.5%, at 2,408, setting another record. Internet Sector

index rose 8.7%.

Excite closed 42 5/16 points higher at 110 after high-speed Internet provider @Home announced it would acquire the Internet portal in an all-stock deal.



was another big winner on talk that it would be the next of the portal stocks to be bought out. Lycos closed 25 points higher at 112 15/16, a 28% increase.

Much of the strength was limited to the portals, though the whole sector caught fire late as the


erased a 130-point loss.

"The group has days when it all goes bananas, but this is not one of those days because the news has been specific to the portals," says Rob Martin, Internet analyst with

Friedman Billings Ramsey

. "It's not an endorsement that takeouts and mergers could take place across the entire Internet business."


(CNET) - Get Free Report

also rose, though its gains were more attributed to news that the company, along with


, would create a portal service for users with high-speed modem connections. CNet closed 27 3/8 higher at 99 3/4. Shares of



closed up 6 at 323, though off their session high of 345.



, which already has a relationship with


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closed up 5 11/16 to 77 1/16. And

Exodus Communications


, a high-speed access provider, closed 23 15/16 higher at 94 1/2.

Martin said he expects the Internet sector to continue to thrive, but investors will become more selective.

"The enthusiasm about growth of the Internet is tremendously positive, but it will be more on a case-by-case basis as the companies report

first-quarter earnings and expectations for the earnings," he says.

OnSale News

Shares of



closed 7 5/8 lower at 50 1/4 after the company said profit margins have been narrowing.

OnSale forecast a fourth-quarter loss of around 15 cents to 17 cents a share, near analysts' expectations of a 16-cent loss, according to

First Call

. At the same time, the company said it would sell computers at wholesale cost with no mark-ups, aiming to generate revenue through advertising.

John E. Labbett, senior vice president and chief financial officer for OnSale, said margins for the auction business that make up most of OnSale's revenue will stabilize at 10%-11%. Gross margins in the new business are in the high single digits, leading to a blend "not very far south of 10%."

Labbett said that Feb. 1 the company will launch a $10 million promotional campaign for the new service, but he expects that it will push back profitability fby around three quarters to mid-year 2000. He said OnSale is hoping to do about $100 million in revenue with the new computer business in 1999.

-- George Mannes