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Last Updated: Friday, 23 April, 2004, 09:05 GMT 10:05 UK
Legal costs hit Microsoft profits
Bill Gates
Microsoft's legal travails have been highly complex
Giant software firm Microsoft's profits have been hurt by the cost of settling a raft of law suits over patents and anti-trust allegations.

Microsoft's profits dropped 38% to $1.32bn (744m) for its third quarter to 31 March, compared with the same period a year earlier.

Legal settlements meant a charge of $2.5bn against its pre-tax profits.

But sales rose by a healthy 17% to $9.18bn. Technology sector analysts were delighted at the overall picture.

Ongoing

Microsoft is battling the European Union over a $600m fine, a record in an EU anti-trust case.

However, it recently agreed settlements in several patent cases.

It paid $1.6bn to end a patents dispute with Sun Microsystems, and $440m to Californian firm InterTrustend in another patent case.

It also settled a class-action anti-trust lawsuit bought against it by customers in Minnesota, whose lawyers were seeking a payout of up to $505m.

Payout

Investors are now keen for Microsoft to outline what it plans to do with its massive cash pile and are pushing for an increase in the company's dividend payment.

Microsoft headquarters
Microsoft just keeps on growing
Chief financial officer John Connors said that he would outline the company's plans later this year.

"Investors can certainly expect to hear more on that at the analyst meeting in July," he said. "I think we have made good progress on a number of legal fronts."

As well as the settlements, analysts said they were particularly impressed with sales of personal computers and larger servers, two key areas of growth.

Server sales increased by 17% in the third quarter, while PCs rose by 14%.

"Growth has been phenomenal," said Clark Chang, an analyst at Fulcrum Global Partners.

Game on

Another area that is doing well is Microsoft's video-game console, the X-Box.

The company has had to cut prices to compete with rivals such as Sony's Playstation, but the strategy seems to be paying off.

X-Box sales surged by 30%, though the discounting has had an effect on the product's profitability.

Microsoft did, however, add a word of caution.

Mr Connors warned that it might prove difficult for the company to keep growing at the frenetic pace seen in previous quarters.


SEE ALSO:
Microsoft hit by record EU fine
24 Mar 04  |  Business


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