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Tuesday, July 20, 1999 Published at 00:26 GMT 01:26 UK

Business: The Company File

Office 2000 boosts Microsoft profits

Business software, not operating systems, drove Microsoft's profits

Microsoft Corporation beat analysts' estimates with quarterly profits of 40 cents a share, boosted by sales of its recently released update to its office software suite.

The company tempered the positive results with warnings that revenue growth would slow due to falloff in demand for computers and worries about the Year 2000 computer bug.

Before the announcement, analysts' forecast averaged 36 cents a share.

The quarterly profits were up from 25 cents a year earlier. The company increased its revenue from $4bn a year ago to $5.8bn. The company said sales increased 39%.

Business software drives profits

[ image: Bill Gates' wealth has passed $100bn]
Bill Gates' wealth has passed $100bn
The Office 2000 software package includes word processing, spreadsheet and presentation software and was the single largest source of revenue this quarter, according to analysts.

Microsoft released the update to its flagship business software suite in June. Microsoft Office commands 90% of the market for business-productivity software.

The company shifted about $200m of revenue from the sales of Office 2000 from the first quarter to this quarter. The company justified the accounting shift because the product did not ship to consumers until the second quarter, although they had paid for it earlier.

The US Securities and Exchange Commission has investigated Microsoft's accounting practices in part for shifting revenue between quarters.

Server demand increases

Microsoft Chief Financial Officer Greg Maffei also said demand for their server products increased, a product line that includes Windows NT, Exchange and SQL Server.

The world-wide installed base of Windows NT Workstation more than doubled since June 1998 to more than 37 million licensed users.

The operating system is currently pre-installed on nearly 30% of all business PCs shipped, according to the company.

Y2K softens sales

Mr Maffei warned that the profit outlook is not as positive as the millennium approaches.

"In fiscal 2000 our revenue growth rates will decline due to slowing PC demand, uncertainty surrounding Y2K, and uncertain global economic conditions, and we will not see further margin expansion," he said.

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