Microsoft Issues First Profit Warning
Dec 15, 2000 (Austin American-Statesman - Knight Ridder/Tribune Business News
via COMTEX) -- Microsoft Corp., the world's biggest software maker, warned Wall
Street late Thursday that it is cutting its earnings expectations for the
quarter and the year, the latter by about 5 percent.
The news, coming on the heels of similar warnings by virtually every other major
tech company in recent weeks, sent Microsoft's widely held stock down $3.44 to
$52.06 in after-hours trading. It had fallen $1.75 in regular trading.
Earnings warnings are starting to become a daily occurrence on Wall Street,
especially among technology companies. But Microsoft's is its first as a public
company, and given the company's size and influence, the warning could spook
investors.
"Microsoft has never missed a quarter as a public company," said Wit SoundView
analyst Arnie Berman. "This is a watershed event in the annals of technology
investing, . . . and I think it speaks volumes to how bad things really are."
Microsoft, which is concerned about the effects of slower personal-computer
sales, said it was caught off-guard by the surprising quickness of the economic
downturn.
"We did not anticipate the rate of deceleration in the world's economy that
we're now seeing," Chief Financial Officer John Connors said in a conference
call with analysts.
The company also foresees slower-than-expected online advertising and
subscription revenues from its MSN Internet service and slower sales of
corporate software.
Microsoft said it now expects to earn 46 cents to 47 cents per share for its
second fiscal quarter, which ends Dec. 31, down from previous forecasts of 49
cents per share.
For its entire fiscal year, which ends in June, it expects about a 5 percent
shortfall, with revenues of $25.2 billion to $25.4 billion and earnings between
$1.80 and $1.82 per share.
Seattle-based Microsoft is most hurt by the declining number of PCs sold with
its software. Like others, Microsoft had been expecting PC sales-growth
percentage rates in the mid-teens this year, Connors said. Actual sales are
shaping up to be a few percentage points lower than that.
Almost every major PC maker has warned in recent weeks that it won't meet its
previously expected earnings because of the sales slowdown.
On Tuesday, Houston-based Compaq Computer Corp. warned its revenues would be
about 10 percent below expectations. Gateway Inc. warned of lower expectations
after its post-Thanksgiving sales were 30 percent lower than a year ago.
Other major PC vendors have also lowered earnings expectations recently,
including Apple Computer Inc. and Hewlett-Packard Co.
In October, Round Rock-based Dell Computer Corp. warned of lower sales and
profits, and some analysts now expect Dell may have to reduce expectations
again. Thursday, Dell's stock closed down 50 cents, at $19.94.
Like Microsoft, other PC suppliers subsequently have warned of earnings
shortfalls. Chip makers Intel Corp. and Advanced Micro Devices Inc. recently
cautioned Wall Street .
As a result, not all were surprised by the Microsoft news.
"If you connect the dots between Intel, Compaq and Dell news, Microsoft was the
next shoe to drop," Christian Koch, an analyst at Trusco Capital Management,
told Bloomberg News.
While many investors bailed out of Microsoft stock in after-hours trading
Thursday night, others saw the downturn as a buying opportunity.
"If you look at where they're positioned, the amount of cash they have on hand,
their ability to move into new markets . . . we still like it," said John
Harrington, whose Napa, Calif., investment firm controls about 90,000 shares for
clients.
"When you get bounces like this, we see them as buying opportunities,"
Harrington said. "We're going to buy a little more."
By Bob Keefe
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(c) 2000, Austin American-Statesman, Texas. Distributed by Knight Ridder/Tribun
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