Microsoft Announces Record Quarterly Revenue and Income

REDMOND, Wash., Jan. 18, 2000 — Microsoft Corp. today announced record revenue of $6.11 billion for the quarter ended Dec. 31, 1999, an 18 percent increase over the $5.20 billion for the same quarter last year. Net income and diluted earnings per share were $2.44 billion and $0.44, a 22 percent increase over the $0.36 diluted earnings per share reported for the corresponding quarter last year.

This quarter’s earnings include a one-time charge of approximately $0.03 per share related to the settlement of a lawsuit by Caldera Inc. Excluding this charge, diluted earnings per share grew 31 percent to $0.47, from $0.36.

“We are very pleased with this quarter’s results, which came in as expected reflecting solid customer demand from around the world, particularly in Asia. Office 2000 and SQL Server 7.0 continued to perform strongly, but we experienced slowing demand for business PCs during the quarter,”
said John Connors, chief financial officer at Microsoft.
“With the upcoming launch of Windows 2000 we are extremely excited to usher in a new era in personal and business computing. However, we remain cautious in our expectations for near-term PC demand and corporate software spending, and continue to anticipate moderate revenue growth through the remainder of fiscal 2000.”

On Dec. 15, 1999, Microsoft released to manufacturing the Microsoft® Windows® 2000 Professional, Windows 2000 Server and Windows 2000 Advanced Server operating systems, and announced broad availability on Feb. 17, 2000.

Windows 2000 is the most reliable, highest-performing operating system in our company’s history, and provides a platform to support customers’ needs for the 21 st century,”
said Jim Allchin, group vice president of Platforms at Microsoft.
“The completion of Windows 2000 represents a phenomenal team effort and would not have been possible without the amazing contributions of our employees, customers and partners across the industry. Windows 2000 is the premier platform for enabling exciting new Internet computing solutions, and addresses the full range of business customer needs, from laptops and desktops to high-end servers.”

Microsoft recently announced plans to assemble the first Internet-based platform of next generation Windows services, with Microsoft Windows 2000 as a crucial building block of the company’s new strategy focusing on software services.

“Software is the key to the future. It will drive and accelerate innovations in hardware, wireless, broadband, e-commerce and other fields,”
said Steve Ballmer, president and CEO at Microsoft. Next generation Windows services will power new products and services and incorporate features and capabilities such as a new user interface, natural language processing, application development approach, schema and new file system — all of which have been in development.

During the quarter Microsoft announced strategic alliances with RadioShack and Best Buy Company Inc. aimed at accelerating the adoption of Web technologies and consumer connections to the Internet. The agreement with RadioShack will establish a Microsoft
“store within a store”
in as many as 7,000 RadioShack locations across the nation. Customers will be able to see demonstrations of a broad range of solutions and services based on Microsoft technologies, and sign up for narrowband dial-up or broadband Internet access via MSN TM or WebTV Network TM services. The alliance with Best Buy will include significant joint marketing efforts and the demonstration and sale of MSN Internet Access plus the full range of Microsoft’s connectivity solutions at more than 350 Best Buy stores.

Microsoft also formed a strategic alliance with Ericsson Mobile Communications to develop end-to-end solutions for the wireless Internet, as part of a shared vision of enabling convenient and fast access to information any time, anywhere and from any device. Ericsson will provide its Wireless Application Protocol (WAP) stack to Microsoft and will adopt Microsoft Mobile Explorer for use in its feature phones. Microsoft Mobile Explorer is a modular mobile phone platform for enabling secure corporate data access, e-mail, Internet, location-based services and electronic commerce from feature phones and smart phones.

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; product ship schedules; life cycles; the impact that year 2000 issues may have on demand for Microsoft’s products and services; terms and conditions; 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 and business computing. The company offers a wide range of products and services designed to empower people through great software — any time, any place and on any device.

Some information contained in this document relates to prereleased product which may be substantially modified before first commercial release. Accordingly, the information may not accurately describe or reflect the software product when first commercially released. This document is provided for informational purposes only, and Microsoft makes no warranties, express or implied, with respect to this document or the information contained in it.

Microsoft, MSN, WebTV, WebTV Network, and Windows are either registered trademarks or trademarks of Microsoft Corp. in the United States and/or other countries. Other products and company names mentioned herein may be trademarks of their respective owners.

For more information, financial analysts only:

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

For more information, press only:

Caroline Boren, Waggener Edstrom, (425) 637-9097, [email protected]

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 p.m. PST conference call with financial analysts is available at .

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