The Telegraph
Since 1st March, 1999
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Microsoft strategy pays off
- Company reports handsome rise in profits, revenue

New York, Oct. 18: Microsoft reported a remarkably strong quarterly performance Thursday with both profits and revenue up sharply at a time when the economy is weak and technology spending is depressed.

Microsoft did get an unusual increase in revenue in the quarter, largely from corporate customers rushing to sign up for a new licensing program before a July deadline.

But the company’s performance also showed that it is succeeding in its strategy to persuade personal computer makers and end users to buy the larger and more costly business version of its Windows operating system, and to move increasingly into the lucrative market for corporate computing. In the corporate market, Microsoft sells not only software for desktop PCs but also the software for the big data-serving computers that power corporate networks. How Microsoft fares in the server market, analysts say, is crucial for its long-term growth and profitability.

Microsoft is bringing the low-cost economics of the personal computer industry into the corporate market, often undercutting the offerings of Oracle, Sun Microsystems and IBM. So at a time when corporate technology buyers are trying to cut costs, analysts say, Microsoft is benefiting and gaining ground on its rivals.

“A down economy is good for Microsoft because it is the low-cost supplier,” said David M. Smith, an analyst at Gartner Inc. “That accounts for a lot of Microsoft’s strength in this environment.”

In a conference call with analysts, Microsoft executives warned that there are uncertainties ahead. First, they warned that they did not expect the traditional year-end pickup in personal computer sales this year.

Next, Microsoft said earnings would probably be somewhat lower in the current quarter, in part because higher holiday sales of its new Xbox video game would trim profits. The company currently loses money on each console sold, betting it can make money later by selling game software designed to run on the Xbox machines.

Executives admitted game machine sales were less than expected in the quarter ended September 30, by nearly $ 100 million. But they reiterated their previous prediction that by the end of the year the total number of Xbox consoles sold since it was introduced last year will be 9 million to 11 million.

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