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Redmond, Washington, July 15 (Bloomberg) -- Microsoft Corp., on the verge of reporting its fourth-quarter earnings, is facing the same weak sales growth that's plaguing its competitors and the world's largest software maker may not recover soon.
Microsoft is expected to have earned about $2.4 billion, or 42 cents a share, on revenue of $5.8 billion for the quarter ended June 30, according to 24 analysts polled by First Call/Thomson Financial. It will report earnings Tuesday afternoon.
While most analysts expect Microsoft to meet or slightly exceed those estimates, many say the Redmond, Washington-based software maker is facing the same challenge as rivals Computer Associates International Inc. and BMC Software Inc.: Trying to boost sales though businesses are slowing software purchases.
``Our expectation is that the quarter will come in modestly above (expectations) but be fairly lackluster,'' said Chris Shilakes, a Merrill Lynch & Co. analyst with a ``near term accumulate'' rating on Microsoft.
Shares of Microsoft have fallen 32 percent so far this year, although they are up 31 percent from a 52-week low on May 26 as the company received some good news on the legal front including a stay of a federal judge's ruling breaking the company in two. The company is appealing the ruling.
Microsoft may be forgiven for a lackluster quarter if company executives reassure investors on Tuesday that sales later this year will grow, analysts say. Many investors will focus on the company's comments on sales of Windows 2000, its flagship operating system for businesses.
Windows 2000
Microsoft has said Windows 2000 sales will boost earnings during the second half of this year. Analysts now say that goal may be slipping.
``The summer is always a dog for software companies,'' said William Epifanio, an analyst at J.P. Morgan, who rates Microsoft a ``buy.'' ``Europe's closed down, people are on vacation and this is the lull in the year. Given that, I'm not expecting a lot of bullish comments from Microsoft for the next quarter. I think the next big quarter will be December.''
Microsoft said last month that it expects to have sold 3 million copies of Windows 2000 by the end of the quarter. But the company didn't break out how many of those were sales of Windows 2000 for workstations and how many were sales of the more expensive version for servers.
Christopher Mortenson, an analyst at Deutsche Banc Alex. Brown with a ``buy'' rating on Microsoft said the bulk of the sales were of the workstation version, which at $319 a copy produces less revenue for Microsoft than the server product which costs $1,199 or $3,999, depending on the version.
While retail sales of Windows 2000 have been solid, analysts said sales of the program bundled with new personal computers and sales to business customers have suffered from a slowdown in PC purchases, particularly business PCs.
Slowing PC Sales
Microsoft's sales have suffered amid signs that many companies are delaying or slowing their purchases of personal computers and software to manage their networks and desktop computers. Both Computer Associates, the No. 4 U.S. software maker, and BMC Software warned earlier this month that their earnings would miss estimates, sending their shares plunging.
``Now investors are saying `who's next (to report earnings), and Microsoft's next,'' said Michael Murphy, who manages $30 million in two technology funds and is ``short'' Microsoft shares, an investment bet that the stock will decline.
Revenue from Microsoft's applications division, which makes the popular Office suite for word processing and spreadsheets is also expected be lower this quarter compared with last year when sales were boosted by the release of Office 2000. The division's other two major products, the Exchange e-mail server and SQL database server are also facing a sales slowdown as customers wait for new versions of those programs due out this year.
Investors will be watching Microsoft's revenue closely because last quarter the company's sales rose less than forecast and it advised analysts that growth would continue to be slower than originally expected. Earnings in the last few quarters have also been boosted by investment income that's made up for the revenue shortfall and analysts say they are looking for the company to rely on healthy sales rather than investment growth.
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