Microsoft joins tech slump with lowered forecast

Microsoft announced late Thursday that its revenues and earnings for the quarter ending December 31, 2000 will be below previous expectations, placing the company with other slumping high tech firms, such as Gateway, Compaq, and Intel. Microsoft blames the lowered expectations on a slowdown of the economy worldwide, which has resulted in lower PC sales, corporate spending, and other factors which affect the company's bottom line. However, Microsoft's financials are still extremely healthy: The company says that it will make between $6.4 and $6.5 billion in its second quarter, with diluted earnings per share of $0.46 or $0.47. This is about 5 to 6 percent less than previously expected.

"We believe, like many other technology companies, that the current weakness in worldwide economic conditions is resulting in a slowdown in PC sales, corporate IT spending, and consumer online services and advertising," said Microsoft CFO John Connors. "Accordingly, we are adjusting our revenue and earnings expectations for the current quarter, and for the balance of the fiscal year. However, while our short-term results will continue to be affected by the current economic environment, our long-term outlook on the information technology market and the PC industry remains positive. We have a lineup of new products and technologies that are receiving rave reviews from customers, and we continue to be very excited about the progress we are making across all our businesses."

Microsoft is particularly susceptible to declines in PC spending, as its best selling products, Microsoft Office and Windows, are most often obtained with new computers, as Connors pointed out during a late Thursday conference call with the press. Still, many analysts had expected Microsoft to perform strongly when compared to companies that rely largely on U.S. consumer sales, such as Gateway and Apple Computer. But Connors said that the economic slump is a worldwide problem now, and it's also affecting corporate spending, though the problem there isn't as serious as it is in the consumer sector. Wall Street responded to the bad news in after hours trading Thursday night, as shares of Microsoft fell $5.19 to $52.06.

"We did not anticipate the deceleration in the world economy we are now seeing," Connors said, noting that PC growth would probably slow to 10 to 12 percent in the quarter. Connors says that 2001 will be strong for the company, however, with major releases such as Office 10 and Whistler bolstering the bottom line

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