Microsoft Reports Solid Third Quarter Financial Results

Redmond, Wash., April 15, 2003 —
Microsoft Corp. today announced revenue of $7.84 billion for the quarter ended March 31, 2003, an 8 percent increase over revenue of $7.25 billion for the same period in the prior year. Operating income for the third quarter grew 13 percent to $3.72 billion, compared to operating income of $3.30 billion reported in the prior year. Net income for the quarter was $2.79 billion, compared to $2.74 billion reported in the previous year. Diluted earnings per share for the March 2003 quarter were $0.26.

“We reported another quarter of strong revenue and operating income results in a very tough environment,” said John Connors, chief financial officer at Microsoft. “While there is obviously a great deal of economic uncertainty ahead, our ongoing investment in R & D has resulted in a broad product pipeline, including upcoming releases of Windows® Server 2003, Visual Studio®
.NET 2003, Exchange 2003 and Office 2003. We believe that these innovative products will enable our customers to get more productivity and value out of their IT investments.”

Information Worker revenue was up 9 percent compared to the same period last year, driven by positive customer demand for Office XP. Customers acquiring Office this quarter included Air Products and Chemicals Inc., Northern Trust Corporation and Pier 1 Imports. Also during the quarter, the company announced the broad availability of Beta 2 for Office 2003. With initial customer demand exceeding expectations, the company now plans to issue more than 600,000 copies of the Beta 2 kits.

Server Platforms revenue grew 21 percent compared to the third quarter of last year, reflecting continued strong performance across a breadth of server products, including Microsoft Exchange, Microsoft SQL Server 2000 and the Windows 2000 Server family of products. Customers acquiring Microsoft server software this quarter include H & R Block, ING Group and Nextel Partners Inc. Revenue growth for Windows 2000 Server was driven by continued market share gains of Intel-based server hardware over proprietary Unix products. Microsoft SQL Server 2000 posted healthy revenue growth of nearly 40 percent, driven by strong demand for SQL Server Enterprise Edition among companies deploying mission-critical applications.

Microsoft Business Solutions posted year-over-year revenue growth of 96 percent, benefiting from the inclusion of revenues from Navision, acquired by Microsoft in July 2002. During the third quarter, Microsoft Business Solutions introduced the highly anticipated Microsoft Customer Relationship Management (CRM) product. “We are pleased with the initial customer and partner enthusiasm for Microsoft CRM. At the end of the quarter, we already had over 1,000 authorized partners and more than 150 ISVs for Microsoft CRM,” said Doug Burgum, president, Microsoft Business Solutions. “Microsoft CRM represents a key component in our overall mission to deliver transformational solutions that enable businesses in the midmarket to enhance and deepen the relationships they have with customers.”

Business Outlook

Management offers the following guidance for the quarter ending June 30, 2003:

  • Revenue is expected to be in the range of $7.8 billion and $7.9 billion.

  • Operating income is expected to be in the range of $3.1 billion and $3.2 billion.

  • Diluted earnings per share is expected to be either $0.23 or $0.24.

Management offers the following guidance for the full fiscal year ending June 30, 2004:

  • Revenue is expected to be in the range of $33.1 billion and $33.8 billion.

  • Operating income is expected to be in the range of $14.8 billion and $15.1 billion.

  • Diluted earnings per share is expected to be in the range of $1.04 and $1.06.

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 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 April 15, 2004.

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, continued acceptance of existing products and services, changes in licensing programs, product price discounts, delays in product development and related product release schedules, and reliance on sole source suppliers for key components of Xbox that could result in component shortages and delays in product delivery, any of which may cause revenues and income to fall short of anticipated levels; obsolete inventory or product returns by distributors, resellers and retailers; warranty and other claims on hardware products such as Xbox; changes in the rate of PC shipments; technological shifts; the support of third party software developers for new or existing platforms; the availability of competitive products or services such as the Linux operating system at prices below our prices or for no charge; the ability to have access to MSN service distribution channels controlled by third parties; the risk of unanticipated increased costs for network services; the continued ability to protect the company’s intellectual property rights; the ability to obtain on acceptable terms the right to incorporate in the company’s products and services technology patented by others; changes in product and service mix; maturing product life cycles; product sale terms and conditions; the company’s ability to efficiently integrate acquired businesses such as Navision a/s; implementation of operating cost structures that align with revenue growth; the financial condition of our customers and vendors; unavailability of insurance; uninsured losses; 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 securit arrangements; the effects of travel restrictions and quarantines associated with the Severe Acute Respiratory Syndrome on general economic activity, particularly in Asia; continued softness in corporate information technology spending or other changes in general economic conditions that affect demand for computer hardware or software; currency fluctuations; trade sanctions or changes to U.S. tax law resulting from the World Trade Organization decision with respect to the extraterritorial income provisions of U.S. tax law; and financial market volatility or other changes affecting the value of our investments that may result in a reduction in carrying value and recognition of losses including impairment charges.

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” and “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 at Microsoft’s investor relations website at .

All information in this release is as of April 15, 2003. 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 “MSFT”) 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, and Visual Studios are either registered trademarks or trademarks of Microsoft Corp. in the United States and/or other countries. Navision, Microsoft Business Solutions ApS and their affiliates are subsidiaries of Microsoft. 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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