Microsoft has topped Wall Street estimates with a 27 per cent rise in second quarter profits, but warned that the soaring cost of research and development will slow down growth in the coming months.
For the second quarter ending 31 December, Microsoft announced net income of $741 million, up 29 per cent on the same period in 1995. Quarterly revenue hit $2.68 billion, up 22 per cent from $2.2 billion a year ago. But R&D continues to grow faster than revenue, up 55 per cent from $482 million in the first quarter of fiscal 1997 to $485 million in the second.
As a result, although the figures exceeded analysts' expectations, Microsoft chief financial officer Mike Brown was quick to warn of a slowdown ahead. He warned: "I do anticipate slower earnings growth in fiscal 1998 due to lower revenue increases in our maturing businesses and margin pressure from continuing aggressive spending on research and development and new business ventures."
"Our growth rates have been slowing sequentially in the past three quarters ? 46 per cent, 38 per cent and 22 per cent," he continued. "For fiscal year 1998 it had been expected that growth rate would be about 20 per cent, but that was before the hurdle bar was moved up by today?s strong results."
Second quarter revenue for Windows NT Server was up 240 per cent on a year ago while shipments of NT Workstation tripled. The company also reported "brisk" holiday sales of devices based on its Windows CE handheld operating system and expects sales of Office 97 - launched last week - to exceed other parts of the product line. Brown said: "The story is one of slowing secular growth in fiscal 98, interrupted for a couple of quarters by Office 97."
The company has $9 billion in cash, and intends to continue to buy back its own stock. "Nine billion dollars sounds like a lot of cash, and it is, but in addition to all the stuff on our list, we have nearly a $20 billion overhang in stock options which have to be paid for," said Brown.
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