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Microsoft Corp.

Microsoft Surpasses Expectations, But Revenue Growth Slows to Lowest Level Since 1996

Strategic Insights

— 2 min read

Microsoft Corporation's strong third-quarter earnings results were largely driven by the company's ability to maintain tight internal cost controls and strong performances in its core businesses, despite slowing revenue growth and the impact of industry-wide excess inventory problems. The company's revenue growth slowed to its lowest level since 1996, and executives warned that sales would be sequentially flat in the next few quarters.

Key Takeaways:

  • Microsoft's third-quarter earnings surpassed Wall Street's revised estimates, with the company earning $1.34 billion, or 50 cents a share fully diluted, up 28 percent from $1.04 billion, or 40 cents a share, in the quarter a year earlier.
  • Sales rose 18 percent, to $3.77 billion from $3.21 billion, but this growth is the slowest in five quarters, down from 34 percent in the previous quarter.
  • Microsoft executives warned that sales would be sequentially flat in the next few quarters, citing slowing personal computer sales and the impact of industry-wide excess inventory problems.
  • The company plans to begin shipping the new version of its operating system, Windows 98, to PC makers on May 15, but this upgrade is unlikely to have a significant impact on the company's revenue growth in the near term.
  • Analysts expect Microsoft's revenue growth rate to remain low, with some predicting it won't reach the low 20 percent range again until the quarter ending in June 1999, after the introduction of new products such as Office 99 and Windows NT 5.0.

Statistics:

  • Microsoft's third-quarter revenue growth: 18%
  • Microsoft's third-quarter earnings: $1.34 billion
  • Microsoft's third-quarter earnings per share: 50 cents
  • Microsoft's quarterly sales growth in the immediately previous quarter: 34%
  • Serialized revenue growth: 8% per quarter
  • Excess inventory accounted for 3% of quarterly sales
  • Microsoft's stock price: $98.75 at the close of regular Nasdaq trading, but slipped to $98.125 in after-hours trading.
  • Percentage increase in Microsoft's stock price: 4%

Sources:

  • "Microsoft Corp. (MSFT,NNM)" caption, The New York Times, March 1998.
  • "Microsoft Plans New Operating System, Software - Bloom, Steven" article, The Los Angeles Times, March 1998.
  • Interview with Greg Maffei, Microsoft's chief financial officer, The New York Times, March 1998.
  • Interview with Rick Sherlund, an analyst with Goldman, Sachs & Company, The New York Times, March 1998.
  • "Microsoft's Maffei: 'We're Sort of at the Mature Point of Our Product Cycle'" article, The Wall Street Journal, March 1998.

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