Microsoft Corp profit and sales estimates for this year and next were cut by several analysts concerned that the company will suffer as rattled consumers and business reduce spending.
Microsoft, the biggest software maker, plans to release its new version of the Windows operating system on Oct. 25. Windows XP was expected by analysts to begin a recovery in sales of personal computers, which declined last quarter. Now analysts fear that companies and home users will be reluctant to buy the software or new computers loaded with it.
Richard Gardner, an analyst at Salomon Smith Barney Inc, cut profit estimates for Microsoft and Dell Computer Corp Monday in expectation that computer and software companies will lose sales because consumer spending is likely to dwindle in response to the Sept. 11 terrorist attacks. Consumer and business spending had been falling already because of the slowing US economy, cutting profits at computer-related companies.
"Earnings of companies with consumer exposure are more at risk than earnings of companies with corporate or government exposure, at least near term," Gardner wrote in a report.
However, if last week's events prompt a sharp decline in consumer spending, this is likely to be followed by further cuts in corporate spending. He cited Gateway Inc, Apple Computer Inc and Palm Inc. as companies that have the most exposure to consumer spending.
Gardner cut his fiscal 2002 earnings estimate for Microsoft to US$1.77 a share from US$1.84. He reduced his fiscal 2003 profit forecast to US$2.02 from US$2.11. He rates Microsoft shares "outperform."
The analyst also cut his Microsoft profit estimate for this quarter to US$0.39 a share on sales of US$6 billion from US$0.40 on US$6.1 billion in sales. Microsoft had said it would earn US$0.39 or US$0.40 on sales of US$6.0 to US$6.2 billion this quarter.
Microsoft shares rose US$2.30 to US$52.01. The stock has risen 20 percent this year, making it the biggest gainer in the Dow Jones Industrial Average after AT&T Corp.
David Readerman, at Thomas Weisel Partners, lowered his rating on Microsoft to "buy" from "strong buy" and reduced his forecast for fiscal 2002 profit and sales.
Readerman wrote to clients that he now expects Microsoft to earn US$1.85 a share on sales of US$27.7 billion, after forecasting US$2 on sales of US$29.2 billion.
Katy Fonner, a Microsoft spokeswoman at public-relations firm Waggener Edstrom, declined to comment on whether the company will change its financial forecast. The Redmond, Washington-based company will issue fiscal first-quarter earnings the week of Oct. 15, she said.
Microsoft said in July that it expects earnings of US$1.91 to US$1.95 a share on revenue of US$28.8 billion to US$29.5 billion for the year ending next June. A Thomson Financial/First Call poll of analysts has average estimates of US$1.91 on sales of US$29.1 billion.
Wendell Laidley, an analyst at Credit Suisse First Boston, lowered his Microsoft estimates for the December quarter to US$0.52 a share on sales of US$7.14 billion from US$0.54 and US$7.54 billion. Sales of personal computers will slow because consumer spending will be lower after the attacks, he said. That will lead to a more "muted" release of Windows XP in the December quarter.
Microsoft, Intel Corp and PC makers like Dell and Compaq Computer Corp that were planning to spend more than US$1 billion to market Windows XP will reallocate that money, Laidley said.
Microsoft's Jim Cullinan, a Windows lead product manager, said he doesn't expect the companies will change their marketing budget, although they may moderate their message to be more sensitive to recent events.
"We certainly understand the atmosphere we are in today is different, but as government leaders have all said, we need to get back to business," Cullinan said.
Laidley also lowered estimates for fiscal 2002 to earnings of US$1.92 on sales of US$28.7 billion, from US$1.94 and US$29.1 billion.
He reiterated his "strong buy" rating on the stock.
ABN Amro analyst George Godfrey and JP Morgan analyst Christopher Galvin lowered financial forecasts for Microsoft on Friday. Godfrey rates Microsoft shares "add." Galvin rates Microsoft shares "buy." Gardner, at Salomon Smith Barney, cut Dell's estimate for 2001 to US$0.62 a share from US$0.64, and the 2002 estimate was reduced to US$0.70 from US$0.81. Gardner rates Dell "neutral."
Dell, based in Austin, Texas, is the largest personal-computer maker.
Gardner also lowered estimates for Gateway, the San Diego-based personal-computer maker, to US$0.03 a share from US$0.07 for 2001, and to US$0.05 from US$0.54 for 2002. He also cut estimates for Ingram Micro Inc, the biggest computer-products distributor, and Tech Data Corp, Ingram's biggest rival.
He raised his rating on Compaq to "buy" from "neutral."
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