Microsoft Will Miss Earnings, Revenue Projections - InformationWeek

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Microsoft Will Miss Earnings, Revenue Projections

Microsoft cut earnings and revenue estimates for its second quarter and fiscal year, blaming the same slowdown in PC sales plaguing Intel, Compaq, and Apple Computer. Though sluggish business IT purchasing has dragged on Microsoft, CFO John Connors says that sector isn't as bearish as are consumer and online-adspending.

Microsoft says it will post revenue of $6.4 billion to $6.5 billion for its second quarter, which ends Dec. 31, and earnings per share of 46 to 47 cents, when it reports results Jan. 18. Analysts had expected Microsoft to earn 49 cents a share. In addition, Connors says, Microsoft's revenue for fiscal 2001, which ends June 30, will be $25.2 billion to $25.4 billion, about 5% less than expected. Fiscal 2000 earnings will be $1.80 to $1.82 per share, compared with analysts' estimates of $1.91 per share.

"Like others in the industry, we're seeing continued slowness in the PC market," Connors said during a hastily arranged conference call Thursday afternoon. Shares of Microsoft on Thursday closed down $1.75, to $55.50, but dropped another $2.625 in after-hours trading.

Computer makers will ship about 125 million PCs priced at more than $1,000 this year, Connors estimated. But instead of percentage growth in the low to mid-teens, as previously expected, unit sales growth of PCs will likely clock in "a couple of percentage points" lower, he projected. The difference is crucial, since Microsoft collects the bulk of its revenue by licensing its Windows operating system and Office software package to PC makers for inclusion on virtually all PCs sold. Microsoft revenue will likely post low double-digit increases in the third and fourth quarters, Connors said. The company's MSN Internet business also suffered during the second quarter because of lower online advertising spending.

Looking ahead, Connors said he's optimistic about revenue growth, but cautioned that the company needs to convince customers to buy its next two major products: Office 10 and Windows Whistler, both due next year. "It's up to us to do a great job bringing these two breakthrough products to market."

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