Microsoft Announces Strong Quarterly Revenue

REDMOND, Wash., Oct. 18, 2001 — Microsoft Corp. today announced revenue of $6.13 billion for the quarter ended Sept. 30, 2001, a 6 percent increase over the $5.77 billion reported in the prior year. Operating income totaled $2.90 billion compared to $2.78 billion in the prior year. Net income for the quarter was $1.28 billion including a $1.24 billion after-tax charge related to the impairment of certain publicly traded and private equity securities, predominantly in the cable and telecommunications industries. This charge is reflected in the $980 million investment loss reported this quarter. Diluted earnings per share for the September 2001 quarter were $0.23, including a $0.20 charge for net recognized investment losses which includes the impairment charge noted above.

“We reported solid revenue and operating results this quarter, fueled by strong customer demand for our Windows® 2000 and .NET Enterprise Server families, and our cost-control efforts,”
said John Connors, chief financial officer at Microsoft.

While we are looking forward to the upcoming launches of Windows XP, Xbox TM and MSN® 7, we also recognize that this is a period of unprecedented global uncertainty that could have an impact on the economy and our business.”

The Windows 2000 Server family had a stellar quarter, with sales growth of over 20 percent.
“We were especially thrilled to see strong customer demand for Windows 2000 Advanced Server, which sold twice as many units as it did the previous year. These products are a rock-solid foundation for the entire .NET Enterprise Server lineup,”
said Brian Valentine, senior vice president for the Windows division at Microsoft.
“These results demonstrate our customers’ enthusiasm for the quality, value and performance offered in our enterprise-ready products and solutions.”

The .NET Enterprise Server family of products also turned in an outstanding quarter with growth exceeding 30 percent, led by the continuing strength of SQL Server 2000 and Exchange 2000 Server. During the quarter, SQL Server 2000 was named Best Overall Database in this year’s VARBusiness Annual Report Card and was deployed by customers such as Pennzoil, Nestl
and Marathon Oil. Exchange Server is the market-leading messaging and collaboration product and boasts over 94 million users. During the quarter, Microsoft also launched Content Management Server 2001, which enables companies to quickly and efficiently build, deploy and maintain highly dynamic Internet, intranet and extranet Web sites.

Microsoft is set to deliver two highly anticipated products to customers during the coming quarter. On Oct. 25, Microsoft will launch Windows XP at events to be held in New York City and more than 60 other cities. Windows XP extends the personal computing experience by uniting PCs, devices and services, and brings the solid foundation of Windows 2000 to home PC users, enhancing reliability, security and performance.

On Nov. 15, Microsoft will launch Xbox, the future-generation video game system. The combination of Xbox’s superior graphics performance and an extensive lineup of game titles from Microsoft and leading game-developers, such as Sega, Electronic Arts, THQ, Tecmo, Infogames, Activision, Konami and LucasArts, will deliver a revolutionary experience to gamers this holiday season.

Business Outlook

Management offers the following guidance for the quarter ending Dec. 31, 2001:

  • Revenue is expected to be in the range of $7.1 billion and $7.3 billion.

  • Operating income is expected to be in the range of $2.9 and $3.0 billion.

  • Diluted earnings per share is expected to be $0.49 or $0.50.

Management offers the following guidance for the full fiscal year ending June 30, 2002:

  • Revenue is expected to be in the range of $28.4 billion and $29.1 billion.

  • Operating income is expected to be in the range of $12.0 and $12.4 billion.

  • Diluted earnings per share is expected to be in the range of $1.61 to $1.66.

Webcast Details

Microsoft will hold an audio Webcast at 2:30 p.m. PDT (5:30 p.m. EDT) today with John Connors to discuss additional details regarding the company’s performance for the quarter and other forward-looking information. The session may be accessed at . The Webcast will be available for replay through the close of business on Friday, Oct. 26, 2001.

Forward-Looking Statements

Statements in this release that are “forward-looking statements” are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors such as: entry into markets with vigorous competition, market acceptance of new products and services, adoption of new licensing programs, continued acceptance of existing products and services, delays in product development and related product release schedules, reliance on sole source suppliers, or shortages of key components for hardware products that delay product delivery, any of which may cause revenues and income to fall short of anticipated levels; the risk of obsolete inventory or product returns by distributors, resellers and retailers; the risk of warranty and other claims on hardware products; higher relative marketing expenses associated with new product releases; changes in the rate of PC shipments; technological shifts; customer demand for our product and services; the support of third party software developers for new or existing platforms; competitive products, services and pricing; changes in product and service mix; product life cycles; sale terms and conditions; the company’s ability to efficiently integrate acquired businesses; implementation of cost structures that align with revenue growth; the financial condition of vendors, resellers and retailers; unavailability of insurance; or uninsured losses (including the effects of the terrorist attacks on the United States on Sept. 11, 2001); adverse results in litigation; the effects of terrorist activity and armed conflict such as disruptions in general economic activity and changes in our operations and security arrangements; general economic conditions that affect demand for computer hardware or software; currency fluctuations; and financial market volatility affecting the value of our investments that may result in a reduction in carrying value and recognition of losses.

For further information regarding risks and uncertainties associated with Microsoft’s business, please refer to the
“Management’s Discussion and Analysis of Results of Operations and Financial Condition”
“Risk Factors”
sections of Microsoft’s SEC filings, including, but not limited to, its annual report on Form 10-K and quarterly reports on Form 10-Q, copies of which may be obtained by contacting Microsoft’s investor relations department at (800) 285-7772 or Microsoft’s investor relations Web site at .

All information in this release is as of Oct. 18, 2001. The company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company’s expectations.

Founded in 1975, Microsoft (Nasdaq
) is the worldwide leader in software, services and Internet technologies 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.

Microsoft, Windows, Xbox and MSN are either registered trademarks or trademarks of Microsoft Corp. in the United States and/or other countries. The names of actual companies and products mentioned herein may be the trademarks of their respective owners.

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. PDT conference call with investors and analysts is available at .

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