Microsoft Stock Drops 5% on Analyst’s Warning
Shares of Microsoft Corp. fell 5% Wednesday after a top analyst said the software company’s earnings would be affected by low demand for personal computers.
Rick Sherlund, an analyst for Goldman, Sachs & Co., issued a report early Wednesday indicating he was lowering his prediction for Microsoft’s third-quarter revenue based on sluggish corporate PC sales.
“We don’t have a real clear picture of March [PC sales],” Sherlund said. “Right now it looks like it wasn’t quite as good as we hoped for, and that hurts Microsoft.”
Redmond, Wash.-based Microsoft, which is a component of the Dow Jones industrial average, the Nasdaq composite index and the S&P; 500, fell $4.50 to close at $79.38 on Nasdaq.
Shares of Microsoft have tumbled 25% since April 3, when a federal judge ruled that Microsoft violated antitrust law. Its 52-week-low is $75.50, which it hit in May, and it is well off its 52-week high of $119.94.
Sherlund said concerns over the year 2000 problem kept companies from purchasing a steady stream of new PCs. Microsoft earns license fees for every PC sold with a Windows operating system, and Windows comes installed on the vast majority of new computers.
“PC growth was very sluggish in November through February, and while it re-accelerated in March, it does not appear to have occurred fast enough,” Sherlund wrote in his report.
Sherlund reduced his revenue estimate for the quarter to $5.75 billion, down from $5.95 billion. That still represents an increase of $1.42 billion, or 33%, from the $4.33 billion earned in the year-ago period.
The consensus estimate for Microsoft’s earnings per share is 41 cents, up 6 cents from reported earnings a year ago, First Call/Thomson Financial reported. Sherlund said reduced revenue might knock 2 cents per share off that estimate, but added that Microsoft’s investment portfolio could make up the difference.
No other analysts have reduced their expectations for the company’s third-quarter performance. Eleven analysts surveyed by First Call/Thomson Financial continue to rate Microsoft as a “strong buy” and 17 others as a “moderate buy.” Only three analysts rate it as a “hold,” and none has recommended selling the stock.
Microsoft would not comment on the report or on the state of PC sales in the industry. The company is due to release its earnings report April 20, after the markets close.
Microsoft released its Windows 2000 operating system Feb. 17, but executives stated at the time that they did not expect to show a great deal of financial benefits from the new software system until the fourth quarter, ending in June.
Since then, the company has been stung by the breakdown of settlement talks and the judge’s ruling in its antitrust suit. Microsoft has vowed to appeal, but the events of last week have helped send the entire Nasdaq spiraling downward.
