Office 97 drives Microsoft's strong Q3 earnings

Once again exceeding analysts' and its own forecasts, Microsoft officials are marvelling over the most impressive fiscal quarter the company has experienced, in which earnings have jumped 85% compared with a year earlier.

Once again exceeding analysts' and its own forecasts, Microsoft officials are marvelling over the most impressive fiscal quarter the company has experienced.

Microsoft's 85% increase in third-quarter earnings to US$1.04 billion was significantly driven by sales of its Office 97 application suite, of which the company sold 8 million licences since its launch in January.

While celebrating the quarter as a sizzling "barn-burning March quarter," Microsoft's financial chief Mike Brown warns that he expects fiscal 1998 to be tough in comparison. The warning has become a staple of Microsoft earnings reports.

"This will be a hard act to duplicate," Brown says, "due to slowing revenues and increase margin pressure."

The company's revenues rose 45% to US$3.21 billion in the quarter ended March 31, compared to US$2.21 billion for the same period a year ago.

The ongoing fourth quarter will be sequentially down compared to the third quarter, Brown says.

At least one analyst seems surprised by the strong adoption rate of the application suite.

"I am surprised by the acceleration of Office 97, " says Chris Le Tocq, analyst with market researcher Dataquest, in San Jose, California. "The take-up of the suite was more than I expected. But it looks like people are going straight for Office 97."

Dataquest expects that PC users will continue upgrading from older 16-bit operating systems to 32-bit operating systems throughout the year, which will offer more chances for sales of Office 97.

"I find it hard to be bearish on Office 97," Le Tocq says.

For its planned acquisition of Web TV Networks, announced in April, Microsoft will

take a US$300 million one-time write-off, Brown says.

Microsoft officials said earlier this month that they had signed a definitive agreement to

acquire WebTV for approximately US$425 million in stock and cash.

Microsoft is on the Web at http://www.microsoft.com/.

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