Microsoft's Warning Doesn't Bode Well for Rest of Software Industry
By Kim Stewart and Kristin Hussey
WSJ.com
Microsoft Corp. took the unusual step this week of issuing a profit warning, jolting already weary investors who have seen once-highflying tech stocks do an about-face over the last six months.
Last December, Microsoft's stock soared on rumors that the software giant was close to settling its long-running antitrust case with the Justice Department and 19 states. The stock hit a 52-week high of $119.94 on Dec. 30, 1999. Friday, the shares sank to a 52-week low of $47.75, past the previous low of $48.44 set Oct. 17.
Sure, Microsoft wasn't alone in warning that its December quarter earnings will take a hit because consumer spending on computers and software has slowed world-wide. Compaq Computer Corp., Gateway Inc., Intel Corp. and Apple Computer Inc. have all issued earnings warnings within the past two weeks, blaming sluggish PC sales to consumers.
Given the current tech environment, with dot-coms falling like dominoes and other tech concerns scrambling for cover, the news shouldn't have been that surprising to those of us resigned to the doom and gloom.
But this is Microsoft, the company whose Windows operating system and Office software sit on most of the world's desktops, the company that hadn't issued a profit warning in more than 10 years and rarely misses earnings expectations. This is a company that holds a monopoly on operating-system software, for goodness sake. If things are bad at Microsoft, how much worse off are the rest of us?
The company's software sales to businesses were viewed as an important buffer amid reduced consumer spending. But Microsoft indicated that corporate spending on computers and software is slowing, too. This is partly because dot-coms are dropping like flies, drying up new sources of business, shrinking Internet advertising and depressing the value of once-fat investment portfolios held by Microsoft, Intel and a host of other heavyweights.
Microsoft said revenue for its fiscal second quarter ending Dec. 31 would fall 5% to 6% below expectations, coming in at $6.4 billion to $6.5 billion. The company said it expects to post a profit of 46 cents to 47 cents a share, compared with the mean estimate of 49 cents a share, according to First Call/Thomson Financial (see article ).
Analysts had expected Microsoft to say its earnings would take a hit, given the parade of other tech bellwethers struggling with similar issues. But the magnitude of its shortfall was a surprise.
"We believe Microsoft's preannouncement sends a broader, more negative signal to investors about the environment and [we] expect a more difficult period upcoming for tech stocks," Goldman Sachs analyst Rick Sherlund said in a Friday research note.
The news out of Redmond, Wash., was depressing, but head south to Redwood Shores, Calif., and the picture looks brighter.
Archrival Oracle Corp., the No. 2 software company, reported better-than-expected earnings for its fiscal second quarter ended Nov. 30. Oracle showed solid increases in net income and sales, and even raised it sales and earnings targets for the current quarter (see article ). Unlike Microsoft, Oracle said it hasn't seen demand for its database and e-commerce software slacken. Investors applauded the news, pushing Oracle's shares up $1.38, or 5%, to $28.88 on an otherwise ugly trading day on the Nasdaq Stock Market.
Intel Corp. and International Business Machines Corp. separately plan new technologies for making chips that are up to 10 times faster than current versions (see article ). Also, IBM plans to invest $1 billion next year in the open-source Linux operating system and an additional $4 billion over three years in the information-technology outsourcing sector (see article ).
Lernout & Hauspie Speech Products NV said it plans to appeal last week's decision by a Belgian court to deny it "concordat" status, the Belgian equivalent of Chapter 11 bankruptcy protection (see article ).
3Com Corp. and Broadcom Corp. extended their alliance to develop ultra-fast corporate computer networks, and Broadcom announced plans to take a stake in 3Com (see article ).
Securities regulators reached a settlement with MicroStrategy Inc. in connection with a probe of improper accounting and reporting practices at the software firm (see article ).
Juniper Networks Inc. agreed to acquire closely held Micro Magic Inc., a maker of chip-design tools, for $260 million in cash and stock (see article ).
Acer Inc. announced details of assembly-plant closures in the U.S. and Germany and the possible sale of more than $590 million of noncore assets (see article ).
Microsoft Corp. agreed to a $97 million settlement of federal lawsuits brought by temporary workers challenging the software giant's employment practices (see article ).
Computer Learning Centers Inc. said the U.S. government determined that the company's practice of paying admissions officers based on the number of students they enroll is illegal (see article ).
IBasis Inc. agreed to acquire closely held speech-technology firm PriceInteractive for about $118 million in cash and stock (see article ).
SAP AG has named a new CFO, a move that will free Chief Executive Henning Kagermann to concentrate on his other responsibilities (see article ).
United Microelectronics Corp. will build a $2 billion wafer plant in Singapore with a foreign partner, in a move that may frustrate Taiwan (see article ).
The FTC approved the $110 billion merger of America Online Inc. and Time Warner Inc., creating a media giant but subjecting it to tough rules, including an agreement to open cable lines to Internet rivals and accept continued monitoring (see article). Also, AOL is holding talks with Toyota Motor Corp. and Sony Corp. that could help the Internet firm expand into online services tailored to cars and video-game consoles (see article ).
RealNetworks Inc. announced substantial improvements in Internet audio and video, just as new pressures are shaking some start-ups from the market (see article ). Also, Microsoft will release several audio and video improvements as it continues to pressure rival RealNetworks in the broadband and wireless markets (see article ).
Online sales are cooling off, rising only 50% in the week ending Dec. 3, down sharply from the prior week's rise. Most analysts have expected online retail sales to increase by at least 60% this year (see article ).
Charles Schwab Corp. has imposed a hiring freeze and is looking for ways to trim expenses as it grapples with a slowdown in customer trading (see article ).
Shockwave.com agreed to acquire AtomFilms, a deal that will result in about 100 job cuts once the online-entertainment companies are combined (see article ).
Covisint has finalized a deal that gives General Motors Corp. and Ford Motor Co. a share of technology supplier Commerce One Inc. valued at $1.26 billion. The agreement makes Commerce One a key partner in the exchange (see article ).
EBay Inc. is acquiring part of Deja.com Inc., a struggling comparison shopping and consumer review site, for undisclosed terms (see article ).
CenterSpan Communications Corp. is buying the assets of Scour Inc., a Web company that filed for bankruptcy-court protection after being sued by entertainment companies (see article ).
AdMart Ltd. said it will shut down its operations and lay off 334 employees. The online grocery and delivery service is backed by Hong Kong tycoon Jimmy Lai (see article ).
Agency.com Ltd. shares tumbled 23% after the company unveiled plans to cut about 190 jobs and report $11 million to $14 million in charges (see article ).
Ask Jeeves Inc. said it will cut 180 full-time jobs, or 25% of its work force, and take a charge in the fourth quarter as part of its plan to restructure into two independent business units (see article ).
Organic Inc. said it will lay off 25% of its staff and warned that fourth-quarter revenue won't meet expectations. The company also named a new chief executive (see article ).
Quintus Corp. said it has reduced its work force by 24%, or more than 100 jobs, to help the developer of customer-service software trim costs (see article ).
AT&T Corp.'s stock has reached an eight-year low, prompting rumors that Ma Bell could face a takeover, from a Baby Bell or a highly valued newcomer, such as Qwest Communications International Inc. (see article ). Also, AT&T told regulators that it will use the proposed spinoff of Liberty Media to satisfy a federal requirement imposed on it as a condition of its merger with cable company MediaOne (see article ).
Qwest Communications agreed to pay $250,000 to settle allegations that it switched customers' long-distance service without their permission in Wisconsin (see article ).
Vodafone Group PLC will buy a 15% stake in Japan Telecom Co. for $2.5 billion, aiming to capitalize on the Japanese cellphone market (see article ).
NorthPoint Communications Group Inc. filed suit against Verizon Communications Inc. seeking $1 billion in damages or injunctive relief from the termination of the companies' merger deal (see article ).
A court ruled that WorldCom Inc. can proceed with its plan to buy Intermedia Communications Inc. in order to gain control of Intermedia's Digex Web-hosting unit, but warned that it could be liable for damages (see article ).
Sprint Corp. said it is looking to beef up its Web-hosting business and may consider buying a provider of such services (see article ). Separately, a Sprint shareholder filed a lawsuit against some directors and executives of the telecommunications firm, claiming they secretly altered a clause in Sprint's stock-option plan (see article ).
RCN Corp. is postponing development of new venues for its broadband networks, choosing to focus on existing markets and ride out the shaky telecom capital market (see article ).
After selling his $1.1 billion sale of USA Networks Inc.'s TV stations to Univision Communications Inc., Barry Diller plans to focus the firms' efforts on acquiring cable-TV networks and Internet businesses (see article ).
Wireless companies bid $501.2 million during the first two rounds of a federal auction for broadcast spectrum that analysts say could be the government's most lucrative auction to date (see article ). Also, a wireless start-up is trying to stop the Federal Communications Commission from auctioning its licenses to two rival firms that are largely owned by Cingular Wireless LLC and AT&T Wireless Group (see article ).
Federal authorities are focusing on the VA Linux Systems public offering in their probe of questionable ways in which Wall Street firms allocate hot IPOs (see article ).
Gemplus International SA's shares rose in debut sessions on both the Nasdaq Stock Market and the Paris stock exchange, despite hiccups in the handling of the smart-card maker's twice-delayed IPO (see article ).
Agere Systems Inc. filed for an IPO of up to $100 million of stock, according to a filing by the communications-semiconductor unit of Lucent (see article ).
Chip maker Advanced Micro Devices Inc. warned that fourth-quarter sales and earnings will be lower than expected because of slow sales of PCs (see article ).
Adobe Systems Inc. named Bruce Chizen chief executive, succeeding co-founder and longtime CEO John Warnock, who will remain co-chairman. The software maker also posted quarterly earnings that beat estimates (see article ).
Anadigics Inc. said it expects to post a loss for the period and lowered its earnings forecasts for the first quarter and full year 2001, largely blaming the continuing reduction in orders by cell-phone customer Ericsson (see article ).
Antec Corp. expects to report a fourth-quarter loss, rather than the profit Wall Street was expecting, due to delays in product shipments to AT&T (see article ).
CMGI Inc. reported a steep loss for its first quarter and said it would continue to consolidate units to stem losses (see article ).
Compaq Computer Corp. warned that fourth-quarter results will fall well short of expectations, becoming the latest tech firm to be hurt by weaker computer demand (see article ).
Covad Communications Group Inc. said it would miss analysts' fourth-quarter targets, largely because the Internet service's resellers are having trouble paying their bills (see article ).
DoubleClick Inc. warned that its fourth-quarter results will fall short of analysts' estimates and lowered expectations for the first quarter of 2001 amid the continued slowdown in online advertising (see article ).
Engage Inc. reported earnings below analyst expectations for its fiscal first quarter and gave a gloomy outlook for the rest of the fiscal year, amid a widespread lag in online advertising (see article ).
Intraware Inc. said it expects third-quarter revenue of $23 million to $25 million, below previous expectations for the e-commerce software and services company (see article ).
Eastman Kodak Co. slashed its fourth-quarter forecasts over 35% and warned that it expects a weak first half of 2001. The firm cited a sharp slump in film sales (see article ).
Microchip Technology Inc. projected lower-than-expected sales in the current quarter and disclosed sharp cuts and delays in its expansion plans (see article ).
Net2Phone Inc. posted a quarterly loss that was narrower than expected as revenue more than doubled. The company also said it plans to stop offering free PC-to-phone calls (see article ).
Oracle Corp. slightly exceeded forecasts for the fiscal second quarter, dodging the downturn affecting other tech firms (see article ).
Pitney Bowes Inc., facing earnings pressure, said it would spin off its office-systems business to shareholders. It also lowered its estimate of per-share operating earnings for this year (see article ).
Qualcomm Inc. will take a one-time charge of $80 million for its most-recent fiscal quarter after an arbitrator ruled that it must share royalties for cell-phone sales with a South Korean research institute (see article ).
Quantum Corp.'s Hard Disk Drive Group plans to post lower-than-expected revenue and a loss in its fiscal third quarter because of a component shortage (see article ).
Razorfish Inc. warned that it will post a fourth-quarter loss, rather than the profit that analysts expected for the Web consulting company (see article ). |
