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Microsoft Lowers 2Q Earnings Expectations

Microsoft Corp. became the latest high-tech company to fall victim to the PC industry slowdown, announcing on Thursday that its second quarter earnings will be below expectations. The software giant also expects revenue earnings to fall below expectations for the remainder of the fiscal year.

In issuing the warning, Microsoft said revenue for the second quarter ending on December 31, 2000 is expected to be about $6.4 to $6.5 billion and earnings per share is expected to be $0.46 to $0.47. Both figures represent a reduction of five to six percent from prior expectation estimates.

For the overall fiscal year, Microsoft expects revenue to fall in the range of $25.2 to $25.4 billion, also a five percent decrease in previous expectations, and diluted earnings per share to somewhere between $1.80 to $1.82.

Following OEMs such as Compaq and Gateway who have lowered earnings expectations, Microsoft pointed to the slowdown in PC sales and corporate IT spending for the main reasons behind the decrease in earnings. Chip vendors Intel and AMD also announced shortfalls, due to the slowdown in desktop PC purchases.

Revenues for enterprise systems remain optimistic, since consumer and end user machines have slowed. Server focused vendors such as Hewlett Packard and IBM have remained relatively untouched, since much of their revenue is derived from systems sold to businesses. The shifting market may make Microsoft’s Windows 2000 and Enterprise Server product lines increasingly important for the company’s business health.

Microsoft will release the earnings report for the second quarter on Jan. 18, 2001, along with providing further details on the 2001 outlook. - James Martin

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.

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