Microsoft Announces First Quarter Revenue and Income

Redmond, Washington —
, October 20, 1998 — Microsoft Corporation today announced revenue of $3.95 billion for the fiscal first quarter ended September 30, 1998, a 26% increase over the $3.13 billion reported in the comparable quarter of last year. Net income reached $1.68 billion including a $160 million one-time gain on the sale of Softimage. This compares to the previous year’s net income of $663 million which included the previously announced $296 million write-off of acquired in-process technology related to the purchase of WebTV Networks, Inc. Excluding these noncontinuing items, net income rose to $1.52 billion compared to the previous year’s net income of $959 million, and earnings per share grew to $0.56 from $0.36.

Demand was stronger than anticipated due to the successful launch of Microsoft Ò Windows Ò98 in Japan and several European countries,”
said Greg Maffei, chief financial officer.

While revenue growth has slowed in Office 97, the product continued to post strong results and customer adoption of Windows NT ÒWorkstation is at an all-time high.”

“The retail acceptance of Windows 98 was quite strong in Japan as it provided consumers with new functionality to upgrade their PCs,”
said Pieter Knook, vice president, Asia region.
“While we’re pleasantly surprised by the strength of business this past quarter, the outlook remains tepid.”

Since its launch on June 25th, worldwide demand for the Windows 98 operating system has resulted in more than 10 million customers acquiring either a Windows 98 retail upgrade, or a new Windows 98-based PC. Customer satisfaction remains high and PC makers continue to report lower support costs with Windows 98 than with Windows 95. Also during the quarter Microsoft announced the shipment of Microsoft Office 2000 beta 1 to a record 20,000 customers and Solution Providers, providing an early opportunity for evaluation of the next version of the world’s best-selling productivity suite.

On the server side, Microsoft Exchange continued its excellent momentum shipping more than 3 million clients for the 3rd consecutive quarter. Microsoft Exchange shipped more client licenses than Lotus Notes for the first half of calendar year 1998 according to both IDC and the Electronic Mail and Messaging Systems Newsletter. Microsoft SQL Server™ reflected similar momentum, posting a record quarter in revenues. Microsoft also announced the upcoming launch of SQL Server version 7.0 on November 16 th at Comdex. Along with the gains in scalability and reliability in SQL Server 7.0, Microsoft and Compaq announced an initiative to integrate high availability features previously available only in Tandem’s NSK, Digital UNIX, and the Open VMS operating system into future versions of Windows NT. Beta 2 code for Windows NT 5.0 operating system was broadly distributed this quarter to more than 250,000 developers, technical beta sites, and channel partners worldwide via the Microsoft Developer Network. Additionally, Microsoft announced worldwide availability of the Microsoft Visual Studio Ò 6.0 development system, the complete suite of development tools for building scalable enterprise solutions.

During the quarter, Microsoft released an updated version of MSN™ and announced plans to launch local MSN portals in 24 additional countries and regions, making it the most widely distributed portal in the world. The network includes several products that are leaders in their respective categories — including news (MSNBC), automotive (MSN CarPoint™ ), email (MSN Hotmail) and games (MSN Gaming Zone) — with a total reach of over 34%, meaning that one-third of all unique users of the Web access an MSN site in the average month according to Media Metrix. The announcement of a one-year $60 million deal with search providers AltaVista, Lycos, Infoseek, and Snap underscores the value of MSN as a distribution point for some of the Internet’s best established brands and reinforces the status of MSN as one of the leading portal brands on the Web.

“We believe the breadth of these results reflects our dedication to the basic principle of continually listening to customers, innovating our products, and keeping the focus on making the best software we can to improve people’s lives at work, home, and school,”
said Bob Herbold, chief operating officer.

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 technological shifts; customer demand; competitive products and pricing; product mix; ship schedules; life cycles; and terms and conditions; litigation; and other issues discussed in the Company’s Form 10-K.

Founded in 1975, Microsoft (NASDAQ “MSFT”) 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, CarPoint, MSN, Visual Studio, Windows, and Windows NT are either registered trademarks or trademarks of Microsoft Corporation in the United States and/or other countries.

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:

Caroline Boren, 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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