Microsoft Corp, the largest software maker, reported lower fiscal second-quarter profit and said sales this quarter will miss analysts' targets because personal-computer shipments are likely to fall.
The company's shares fell as much as 4.2 percent after it said net income for the period declined 13 percent to US$2.28 billion, or US$0.41 a share, from US$2.62 billion, or US$0.47, a year earlier. The report dragged down rival Oracle Corp and PC makers Compaq Computer Corp and Dell Computer Corp.
Microsoft expects global PC sales to drop in the first half of this year, compared with a previous forecast for shipments to rise, Chief Financial Officer John Connors said in an interview. The company hasn't seen a rebound in any of the world's major markets, and poor PC sales in Japan are hurting demand for Office word-processing and spreadsheet software, he said.
"It was a roar followed by a whimper," said Scott McAdams, chief executive officer of Seattle-based McAdams Wright Ragen Inc, which holds Microsoft shares. "It was a huge quarter but clearly a very humble outlook for the third and fourth quarters."
Excluding US$660 million, or US$0.08 a share, in costs related to the settlement of class-action lawsuits, Redmond, Washington-based Microsoft said profit in the recent quarter would have been US$0.49 a share. On that basis, which doesn't conform to generally accepted accounting principles, Microsoft topped the average US$0.43 forecast in a Thomson Financial/First Call analyst survey.
Revenue rose 18 percent to US$7.74 billion from US$6.55 billion, the company said, as it benefited from demand for the new Windows XP software for personal computers, as well as rising sales of higher-priced versions of Windows for business PCs.
Sales in the period ending in March will be US$7.3 billion to US$7.4 billion, the company said, while analysts polled by First Call on average expected US$7.49 billion. Profit will be US$0.50 to US$0.51 a share, Microsoft said. The estimate includes US$0.10 from the sale of its stake in the Expedia Inc travel service, spokeswoman Katy Fonner said. Analysts expect profit of US$0.47, according to First Call.
"PC demand is still below what we had hoped," Connors said. When there is a recovery, it will be "modest, not booming," he said.
PC software generated 64 percent of Microsoft's sales in the second quarter ended Dec. 31. Microsoft shares dropped as low as US$66.90 after the earnings report. They rose US$1.99 to US$69.86 in regular US trading before the release. The stock has gained 31 percent in the past year, the best performance in the Dow Jones Industrial Average of 30 companies.
Oracle shares fell to US$16.80 after closing at US$17.22. Dell Computer fell US$1.35 to US$27.60 from its close of US$28.95. Compaq fell as low as US$11.25 after rising US$0.70 to US$11.80 in regular trading. Intel Corp, the biggest computer-chipmaker, fell US$0.83 to US$33.70.
One money manager said slowing sales growth is one reason he won't buy Microsoft shares.
"Incremental growth is either going to come from new products or people upgrading their existing products," said Chuck Lieberman, chief investment officer at the money manager Advisors Financial in Suffern, New York.
For fiscal 2002, which ends in June, profit will be US$1.57 to US$1.60 a share, including the legal costs in the second quarter and a US$0.20 investment loss in the first quarter ended in October, Connors said. For 2002, analysts expect US$1.83 a share in profit, excluding these costs.
Revenue from Windows software for PCs rose 24 percent in the recent quarter, bolstered by sales of Windows XP, which went on sale Oct. 25, Connors said. XP sold well even as PC sales declined because many customers purchased the boxed version of the software to install on their older PCs, he said.
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