January 21, 1998 12:59 PM MICROSOFT'S 2Q SEEN IN LINE WITH WALL STREET
VIEWS
By Maria V. Georgianis
NEW YORK (Dow Jones)--Whisper chatter on
Microsoft Corp.'s (MSFT) fiscal second quarter is being
muted by earnings disappointments and the continuing
impact from Asian financial turmoil on other technology
companies.
"The whisper numbers have been pretty quiet," said BT
Alex. Brown Inc. analyst Mary McCaffery. "Unlike
other quarters, there aren't great expectations for upside.
There are some modest ones," McCaffery said, adding
that she still expects the company to report a solid
quarter.
McCaffery said the current technology environment is
keeping a lid on Microsoft's whisper numbers.
Traders and analysts said the company has a potential
upside of a penny or two at most above the First Call
Corp. consensus of 82 cents a share. The estimate has
held since Oct. 21, the day after Microsoft reported its
fiscal first quarter. Estimates range from 77 cents to 85
cents among the 26 analysts who follow the company,
according to First Call.
Earnings of 82 cents a share would represent 44%
growth over year-ago earnings of 57 cents.
"There could be a possibility of modest upside," said
PaineWebber Inc. analyst Walter Winnitzki. "The good
news is the expectations are close to the published
numbers."
Piper Jaffray Inc. analyst Thomas Berquist said investors
have been more focused on figuring out the long-term
implications of other tech companies' earnings, such as
those from Oracle Corp. (ORCL) and International
Business Machines Corp. (IBM), than divining
Microsoft's whisper number.
One trader said there have been rumors about how the
Asian turmoil would impact Microsoft, but some
analysts believe that growth in North America and
European markets should offset Asia-Pacific concerns.
Office 97, Oper Systems Drive Growth
Unit growth in computers, which helps Microsoft sell
more copies of Windows 95 and Windows NT, as well
as sales of its Office 97 business software are
considered to have driven Microsoft's results for the
quarter ended Dec. 31.
"Unit growth in the PC business has remained healthy,"
PaineWebber's Winnitzki said. "Everyone knows by
now that Microsoft is getting the same royalty per copy
of Windows whether it's a $1,000 PC or $2,000 PC,"
he added.
"If we do get an (earnings) upside, it could be driven by
the fact that the tail-off impact of Office 97 would be
more moderate than people expected," the analyst said.
Growth rates for Office 97, as well as for other
Microsoft products, have been slowing since the
company is at the trough of its current product cycle.
Analysts will be keeping an eye on Microsoft's
discussion of forward-looking earnings growth during
the first half of 1998 since the company doesn't plan any
major upgrades during this period.
While Asia-Pacific woes are leading other high-tech
companies to express near-term caution, Microsoft's
exposure to this region is relatively modest in
comparison.
The company's sales in that region, including Japan,
represent about 12% of its overall revenue, according to
Winnitzki. This is below the industry average due to high
software piracy rates, he said.
In fact, Microsoft's sales into that region have been
growing rapidly for its Windows NT operating system as
many companies have transitioned from proprietary
operating systems to Windows NT, said Piper Jaffray's
Berquist.
The concern about Asia's impact on Microsoft is more
tied to how a slowdown in PC purchases from that
region will impact Microsoft since the company's
operating system software dominates PC desktop
shipments, Berquist said.
Others believe any slowdown in PC unit growth from
the Asian markets will be mitigated by healthy growth
from the U.S. and a recovering European market.
"People are looking for some moderation in PC unit
growth, maybe by a couple of percentage points but not
a big change in the number of units," Winnitzki said.
-Maria Georgianis; 201-938-5244 |
