Microsoft Blames Slower PC Sales

FRAMINGHAM (04/24/2000) - A Microsoft Corp. official, ending an unusually dour earnings call late last week, predicted lower future growth and blamed it partly on soft sales of corporate PCs. That set off a chorus of concerns about the impact it would have on the stock market, which reopens today for the first time since Thursday.

During the conference call with journalists and analysts, Chief Financial Officer John Connors said lower-than-expected sales of business PCs had hurt revenue for the quarter ended March 31. Uncertainty about further business PC growth and the maturity of Microsoft's main product lines, he said, would put percentage revenue growth in the "mid-teens" for the fiscal year starting July 1. That report alarmed some analysts, who had expected up to 20% growth.

"I was expecting a ho-hum quarter. I was not expecting a lousy quarter," said Bill Epifanio, an analyst at New York-based J.P. Morgan Securities Inc..

Combined with Connors' bleak growth outlook for next year, it makes for a "double whammy" for a stock that's already under a cloud because of the antitrust trial, he said.

Industry analysts confirmed that the commercial PC market is seeing some saturation. One user, Shellie Sommerson, business systems manager at the Statesman Journal in Salem, Oregon, said her PC spending had slowed a bit this year because the company bought a lot of PCs in preparation for Y2k.

Framingham, Massachusetts-based International Data Corp. (IDC) is predicting single-digit sequential growth for U.S. commercial PC sales for the rest of the year. IDC analyst Roger Kay said he expects sales to rebound when Windows 2000 takes off late in the year, however.

But Rob Enderle, an analyst at Giga Information Group Inc., said Microsoft "botched" the launch of Windows 2000 by staging a big event before early adopters could show successes. "They will be paying for that for the next six to 18 months," said Enderle.

Laurie McCabe, an analyst at Summit Strategies, said she thinks companies will be buying less PC-centric software, not fewer PCs. Enderle agreed. He said Microsoft's Office 2000, especially, is at "extreme risk" from the move to Web-based, often free applications.

Microsoft has a history of chilling investors' expectations for coming quarters. But analysts said this approach makes little sense when its stock is already under pressure.

Analysts worry Microsoft won't be the only one to suffer. "Every time Microsoft gets walloped, you can expect collateral damage," Epifanio said.

Though Microsoft reported 23% growth in both revenue and net income for the quarter, earnings per share would have missed consensus estimates if not for better-than-expected investment gains, said Jeff Maxick, director of research at Madison Securities Inc. in Chicago.

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