Microsoft, the world's largest software company, once again has reported earnings well above expectations.

The result confirms Microsoft's dominance of the computer world, despite its legal troubles in the anti-trust trial brought by the US government, and the recent resignation of company co-founder Bill Gates as chief executive.

Microsoft said that it earned 47 cents a share during its second quarter, which ended on 31 December 1999.

This is well above the consensus forecast by Wall Street analysts of 42 cents a share, and even higher than the so-called "whisper" figure of 45 cents a share.

The result represents a 31% increase in earnings, when Microsoft delivered a mere 36 cents a share.

Microsoft is making a habit out of beating stock market expectations, disappointing investors not once since 1994.

Settlement hits earnings

However, earnings were hit by a three cent charge to cover the costs of a recent settlement with Caldera Systems, a software firm that had accused Microsoft of undermining the sales of its DR-DOS software.

The private anti-trust action was settled out of court.

This pushed down earnings to 44 cents a share - still well above forecasts.

Revenues up 18%

Overall revenues were up 18% at $6.1bn, one billion dollars more than a year earlier.



John Connors, Microsoft's chief financial officer, said in a statement that the company was "very pleased with this quarter's results, which [reflected] solid customer demand from around the world, particularly in Asia".

The company interpreted the 56% surge of sales in Asia as a reflection of "improved local economic conditions".

He said that Office 2000 and SQL Server 7.0 performed strongly.

The company predicted moderate revenue growth for the rest of the current financial year.

Analysts had expected a strong showing by Microsoft, after chip maker Intel had announced better-than-expected record earnings.

The strong demand for personal computers was bound to drive up Microsoft's results. However, Mr Connors warned that Microsoft "experienced slowing demand for business PCs during the quarter".

Waiting for Windows 2000

Microsoft's next big step will be the release of its Windows 2000 operating system, an update of the business-strength Windows NT software.

At the same time, the firm is in the early stages of the upgrade cycle for its Office 2000 applications, a suite of products containing word processor, data base, spreadsheet and a range of other office software.

This should set up the firm for "two to three years of strong revenue streams ... from each of these product cycles", said Salomon Smith Barney analyst Neil Herman before the Microsoft results were released.

Troubled Microsoft

The earnings results come after a turbulent week for Microsoft.

First there were signs that the settlement talks in the government's anti-trust trial against Microsoft are going bad, and that the Justice Department's lawyers will urge a break-up of the company.

Then came the news that Microsoft co-founder and driving force Bill Gates will step down as chief executive.

He handed over the day-to-day running of the business to his friend from Harvard days, Microsoft president Steve Ballmer.

Some analysts suggested that this was the first step to prepare for splitting the firm into separate parts. Others, though, say that Mr Gates will very much remain in control.

After all, he is still the chairman of the company board. The move might actually strengthen the firm as Steve Ballmer will focus on the operational side, while Bill Gates returns to what he can do best - develop software.

Mr Gates has named himself as "chief software architect" of Microsoft, and wants to prepare the software giant for the challenges of what he calls the "internet century".