Microsoft Announces Record First Quarter Revenue and Income

Redmond, Washington, October 20, 1997 — Microsoft Corporation today announced revenue of $3.13 billion for the fiscal first quarter ended September 30, 1997, a 36% increase over the $2.30 billion reported in the comparable quarter of last year.

Net income for the quarter equaled $663 million, including the previously announced $296 million write-off of acquired in-process technology related to the purchase of WebTV Ò . Earnings per share were $0.50. Excluding the one-time write-off, earnings per share of $0.72 represented a 53% increase compared to the $0.47 earned during the same quarter last year.

“Microsoft had a very successful quarter on several fronts,”
noted Greg Maffei, chief financial officer.

Shipments of Microsoft Ò Office 97 remained strong, server products grew well sequentially and year-over-year, and Microsoft Windows Ò 95 and Microsoft Windows NT ÒWorkstation grew significantly both in the OEM and retail channels.”

Independent developer support continued to build for Microsoft’s products as demonstrated by attendance at Microsoft’s largest Professional Developer Conference (PDC) in history.
“6,200 people attended the PDC this year, and over two-thirds of those surveyed plan to take advantage of our newly announced technologies within the next year,”
said Paul Gross, vice president, Developer Tools Division.

At the PDC, Microsoft delivered the beta version of the Microsoft Windows NT 5.0 network operating system to attendees, and since then over 200,000 beta copies have been distributed. Earlier in the quarter, the new Application Developers Customer Unit was formed to expand Microsoft’s relationships with developers of line-of-business applications and to increase focus on major industries, such as financial services, manufacturing and retail/distribution .

At the quarter’s close, Microsoft released Microsoft Internet Explorer 4.0, which is receiving high marks from technical reviewers and winning head-to-head comparisons with Netscape Communicator 4.0 in the area of Java support as well as overall performance, reliability, and comprehensive functionality.

Customers downloaded over two million copies of Internet Explorer 4.0 in the first week of its release setting a new download record for a Microsoft product.

In August, Microsoft and Apple Computer announced that Internet Explorer will be included as the default browser for the Macintosh operating system, and that the companies had entered into a patent cross-license agreement. Microsoft also invested $150 million in Apple stock, and agreed to continue application development for the Macintosh. Also during the quarter Microsoft completed the acquisition of WebTV for approximately $425 million in cash and stock.

“While the first quarter of fiscal 1998 was very successful for Microsoft on many fronts, there are still many challenges that lie ahead,”
said Bob Herbold, chief operating officer.
“The operational efficiencies gained within the business in the recent past are not likely to continue at the same rate, and this fiscal year will see significantly fewer product launches than prior years.”

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, litigation and other issues discussed in the company’s form 10-K.

Founded in 1975, Microsoft (NASDAQ
) 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.

Microsoft, Windows, and Windows NT are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries. Macintosh is a registered trademark of Apple Computer, Inc. WebTV is a registered trademark of WebTV, Inc. Other products and company names mentioned herein may be the trademarks of their respective owners.

For More Information, Analysts Only:

Carla Lewis, Senior Director, Investor Relations, (425) 936-3703

For More Information, Press Only:

Tom Pilla, Microsoft Corporation, (425) 882-8080

Heidi Rothauser, Waggener Edstrom, (425) 637-9097

Note to editors: If you are interested in viewing additional information on Microsoft, please visit the Microsoft Web page at on Microsoft’s corporate information pages. Shareholder and financial information as well as today’s 2:30 PDT conference call with financial analysts is available at .

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