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Analyst: Microsoft to Fall Short of Projections

Goldman Sachs Thursday trimmed its estimates for Microsoft.

"We have reduced our December quarterly revenues by $125 million to a range of $6.775 to $6.8 billion, up 11 percent over last year versus our earlier 13 percent estimate," said Richard Sherlund, a financial analyst. "We cut $200 million for our March estimate and $150 million from June. Our earnings per share estimate is cut modestly to $1.88 from $1.91 for fiscal 2001."

The revision is attributed to a slowdown in PC sales, which accounts for about 10 percent of Microsoft's total revenues. "The impact is not going to be real big," Sherlund said. "We had assumed in our model 10 to 15 percent consumer PC growth in the December quarter. It now appears we are flat," said Sherlund.

"However we anticipate a 10 percent increase in corporate PC growth," he said. "Last year December was a good consumer quarter, but corporate sales were flat. This year we think that consumer is flat and corporate is up."

At the end of November, Microsoft shares posted their third-biggest one-day drop in a decade on concern that revenue may be hurt by weak holiday sales of personal computers. Other computer-related stocks also slumped, sending the Nasdaq Composite Index down.

Sherlund noted that although Microsoft has not released its November earnings, he anticipates that they "will not look very good."

Overall, Sherlund does forecast growth for the company. "Our revised estimates reflect 10 percent sequential growth in Microsoft's overall desktop platform revenues. This is versus the 4 to 8 percent sequential growth Intel has expected for its business," he said.

"In reconciling Microsoft data versus Intel, we note that Microsoft reported an 11 percent sequential decline in the March quarter versus a 2 percent decline for Intel; a 3 percent decline in June versus Intel's 4 percent sequential increase; and 2 percent sequential growth in the September quarter versus 5 percent for Intel," he said.

Sherlund also expects to see increases in sales of enterprise software and as well as consumer games and devices. "We have modeled much stronger growth for the March and June quarters he said. "We are looking at an 18 percent rise in March and 20 percent in June."

Sherlund noted that Microsoft has been disclosing far less data about the monthly tone of its business and that his estimates are extrapolated from industry trends.

Shares of the company sold for $53 in early Nasdaq trading. They closed at $56.69 yesterday.

In related news, Forrester predicted that the giant software maker would spend nearly $1 billion to promote its access, portal and browser products over the next year. The research organization anticipates that the short-term goal of catching AOL will not come to fruition but the spending will pay dividends during an ensuing broadband boom.

According to a statement released by Forrester, the spending will aim to increase worldwide awareness of the MSN brand, leverage the retail channel and snatch AOL switcher.

However, the company is doubtful the investment will pay off because it will be difficult to become a content brand overnight, switchers will be more scarce and less loyal and the access war will shift away from retail.

Finally, Forrester believes that the company will be better served by upgrading its audience to high speed only and play to its strengths in software.



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