Microsoft Cautions About Fiscal 1998 Growth Despite Record December Results

REDMOND, Wash., Jan. 17 — Microsoft Corporation (Nasdaq: MSFT) today announced net income of $741 million, and earnings per share of $0.57 for the quarter ended December 31, 1996, a 27% increase over the $0.45 earnings per share reported for the corresponding quarter last year. Revenues totaled $2.68 billion, a 22% increase over the $2.20 billion during the same quarter last year.

“The company performed solidly in all of our businesses, including operating systems, desktop applications, enterprise software, tools, hardware and content,” noted Mike Brown, chief financial officer. “We are pleased with the current financial results and growth prospects for the next two quarters, particularly with the outlook for sales of Office 97. However, I do anticipate slower earnings growth in fiscal 1998 (beginning July 1997) due to lower revenue increases in our maturing businesses and margin pressure from continuing aggressive spending on research and development and new business ventures.”

“We are making major investments for the future,” said Bob Herbold, chief operating officer. “We are building increased functionality and Internet capabilities into our products, and pursuing advances in operating systems, enterprise client/server products, and basic research that should reap benefits for the entire personal computer industry and its customers.”

During the quarter, Microsoft announced the Zero Administration for Windows(R) initiative, which will allow companies to significantly reduce the cost of owning PCs while maintaining their existing investments in industry-standard hardware and software. In concert with Zero Administration for Windows, Microsoft launched the NetPC reference platform. This addition to the industry-standard PC platform complements Microsoft’s Zero Administration initiative for Windows and Intel’s Wired for Management initiative to reduce ownership costs of PCs.

Yesterday, Microsoft announced the retail availability of Office 97, the new version of the world’s best-selling productivity suite, which integrates the ease of intelligent applications with the power of the Web. Office 97 includes significant new versions of its component applications, including Microsoft(R) Word, Microsoft Excel, Microsoft Access, the PowerPoint(R) presentation graphics program and the Microsoft Outlook(TM) desktop information manager.

This press release contains statements that are forward looking. These statements are based on current expectations that are subject to risks and uncertainties. Actual results will vary because of factors such as PC shipment growth, product ship schedules, life cycles, terms and conditions, product mix, competitive products and pricing, customer demand, technological shifts and other issues discussed in the Company’s Form 10-K.

Founded in 1975, Microsoft is the worldwide leader in software for personal computers. The company offers a wide range of products and services for business and personal use, each designed with the mission of making it easier and more enjoyable for people to take advantage of the full power of personal computing every day.

NOTE: Microsoft, Outlook, PowerPoint, and Windows are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries.

For More Information Visit the Microsoft Financial Forum Web Site.

CONTACT: Analysts only, Carla Lewis, Senior Director, Investor Relations, 206-936-3703; or media, Tom Pilla, 206-882-8080, both of Microsoft Corporation; or Shelby Barnes of Waggener Edstrom, 503-443-7000, for Microsoft

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