Microsoft, Buoyed by Windows 95 Sales, Reports 58 Percent Profit Jump
JAMES L. ENG
Oct. 17, 1995
SEATTLE (AP) _ Microsoft Corp., buoyed by strong sales of its Windows 95 software, on Tuesday reported a 58 percent profit jump for its first fiscal quarter.
The performance exceeded analysts' expectations and will likely improve investors' view of the technology sector, where stock prices had declined since the late August rollout of Windows 95 because of fears that it would not live up to its hype.
The third quarter profits and near-term outlooks of several other prominent technology companies _ including International Business Machines Corp., Intel Corp. and Sun Microsystems Inc. _ have also reassured Wall Street about the sector.
``When you have Intel and Microsoft come in with strong quarters, Sun had a blowout and IBM did OK, those are all positives,'' said Gary Helmig, analyst at Soundview Financial Group.
Microsoft said it earned $499 million, or 78 cents per share, in the quarter. That compares to $316 million, or 51 cents per share, a year ago.
Revenue was $2.02 billion, a 62 percent increase over the $1.24 billion from the first quarter of last fiscal year.
The performance well exceeded the consensus estimate of 70 cents per share. Microsoft released earnings after stock trading ended. Its shares closed at $91.12 1/2, up $4.37 1/2 on the Nasdaq Stock Market.
``These excellent results reflect the continuing strength of our overall business and the initial achievements of Windows 95 in North America and Europe, and throughout many parts of the world,'' Bob Herbold, Microsoft's chief operating officer, said in a statement.
The company said 7 million units of Microsoft 95 have been purchased either as an upgrade or on a new PC. The estimate was the first from Microsoft since five days after sales began, when the company said 1 million units had been sold.
While the product has sold faster than any piece of software, it is difficult to say whether sales have met expectations.
Estimates of the number of copies of Windows 95 that would be sold through the end of the year ranged from 15 million by Inteco Corp., a market researcher based in Norwalk, Conn., to 29 million, by Dataquest Corp., a San Jose, Calif.-based research group.
The closest the company has come to expressing an expectation was at a July meeting with financial analysts. Executives at that time estimated 10 to 25 percent of the people who used the old version of Windows would buy Windows 95 during its first year of availability.
With a base of 100 million PCs using Windows, that represents 10 million to 25 million purchases. More would be sold pre-installed on new computers.
Microsoft has also said it would defer recognizing about 40 percent of Windows 95 revenue during its first 18 months in order to smooth a sales bump that could harm comparisons in 1996 and 1997.
Investors have paid attention to the product because it is a basic ingredient of so many personal computers. And many developers of software applications, such as games or word processing programs, create their products to work in conjunction with it.
``A lot of other companies beside Microsoft are betting a lot on Windows 95 _ all the software vendors who created products for it, and all the PC vendors are hoping that it results in a lot more computers being sold with Windows 95 on them,'' said Dwight Davis, editor of Windows Watcher, an industry newsletter.
``So, pretty much the whole industry has been looking to Windows 95 to give it a big boost, and according to these figures it suggests it's coming through in that regard.''