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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (42819)	4/21/2000 12:53:00 PM
From: puborectalis	Read Replies (2) \| Respond to of 74651

Microsoft profit beats estimates, but barely by Paul Andrews Special to The Seattle Times Microsoft yesterday took a typically conservative stance after slightly beating earnings estimates with a profit of $2.39 billion, or 43 cents a share, for the quarter ending March 31, warning that continued softness in business PC sales could dampen its performance next quarter. But analysts continued to see more possum than bear in the Redmond company's comments. "The good news is they beat the number on an earnings-per-share basis," said Scott McAdams, market analyst at McAdams Wright Ragen in Seattle. "The bad news is they're being pretty cautious on their outlook. My guess is corporate demand for PCs is going to be good." The third-quarter numbers reported yesterday beat First Call's expectations of 41 cents a share, but fell short of Wall Street's "whisper number" of 45 cents. For the same quarter last year, Microsoft reported profit of $1.92 billion, or 35 cents a share. Revenue of $5.66 billion, up 23 percent from $4.6 billion last year, fell slightly shy of Goldman Sachs analyst Rick Sherlund's downwardly revised figure of $5.75 billion. When he issued the revised figure on April 12, the stock market sank into one of several recent tech-driven tailspins. Sherlund, considered the leading numbers analyst among those who follow Microsoft, earlier had forecast revenue of $5.95 billion. Year 2000 concerns had led to a slowdown in PC sales for December and January, prompting Sherlund to lower his estimates. In after-hours trading yesterday, investors sent Microsoft's stock price down $3.125, to $75.813. The stock had closed at $78.938, up 25 cents. The company's earnings report, always closely watched, comes this time in the context of a federal judge's ruling early this month that the company had violated antitrust laws. Next week, the government is to present its recommendations as to how the company should be punished. The 'twixt and 'tween results may do little to clarify the volatile tech-sector outlook. Analysts say soft PC sales during the period 1999 turned into 2000 were a one-time occurrence, but they're divided on the effect the growth of Internet appliances - non-PC devices that let consumers connect easily to the Web - will have on future PC growth. Windows 2000 adoption rates, competition from the Linux operating system and computer users' reliance on the Internet for PC-like applications all factor into Microsoft's outlook as well. In releasing the numbers, Microsoft Chief Financial Officer John Connors noted that PC demand appeared to pick up late in the quarter, fueled in part by the company's mid-February launch of Windows 2000. More than 1.5 million units of the new operating system have been shipped since the launch, said Jim Allchin, platforms group vice president at Microsoft. "We're hopeful PC demand will be good" for the spring quarter, Connors told analysts and media during a conference call. "But till we see it, we want to be cautious." Connors said a recovery in PC growth "is not a matter of if but when, and the next quarter is going to be critical for determining if it is accelerating." He also said Microsoft earnings may fall "a penny or two below" consensus estimates for the next quarter. The company will have a tougher time comparing fourth-quarter figures with the previous year, when strong Office 2000 sales boosted year-ago figures, he noted. Connors further warned that estimates for 2001 were "as much as a nickel" too high. He said analysts should expect the percentage growth in revenue to be in the midteens, primarily because "it's just hard to grow a number that big by 20 percent." Sherlund, who has forecast 18 percent revenue growth for 2001, said in the conference call that it wasn't clear to him "why we should change the growth rates for next year, other than perhaps you want to be more conservative, having fallen a bit short over the near term." McAdams, another veteran Microsoft watcher, saw the company's warnings as "a little severe." "They essentially said Windows 2000 had a minimal impact on this quarter," McAdams said. "I just don't think two quarters from now they'll be able to say the same thing." Windows 2000 is priced around $100 more per unit than Windows 98. One "head-scratcher," as McAdams termed it, was Microsoft's advisory that average per-license operating-systems revenue declined in part from "lower prices of certain operating systems" licensed to computer makers. McAdams said it was unclear whether Microsoft was reducing prices because of competition from Linux or "because of new contract restrictions out of the DOJ (antitrust) case or from something else going on." Traditionally revenue per license has risen, he noted. Another longtime industry analyst, Mark Anderson of Strategic News Service, called Microsoft "perfectly positioned" to reap "large-scale economic benefits that come from building a new commerce platform." Anderson also noted that "every core technology company I follow has beaten earnings in the last few days." The markets are taking today off in observance of Good Friday, giving investors a long weekend to cogitate on Microsoft's showing.