Microsoft Profit, Sales Estimates Lowered for This Year, Next

Microsoft Corp. profit and sales estimates for this fiscal year and next were cut by several analysts concerned the company will suffer as rattled consumers and businesses reduce spending.

Microsoft plans to release its new version of the Windows operating system Oct. 25. Windows XP was expected by analysts to begin a recovery in sales of personal computers, which declined last quarter. Now analysts fear 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. in expectation 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 U.S. 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 [the Sept. 11] 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 earnings estimate for Microsoft’s fiscal year ending in June 2002 to $1.77 a share from $1.84. He reduced his fiscal 2003 profit forecast to $2.02 from $2.11. He rates Microsoft shares “outperform.”

The analyst also cut his earnings estimate for this quarter to 39 cents a share on sales of $6 billion, from 40 cents on $6.1 billion in sales. Microsoft had said it would earn 39 cents or 40 cents on sales of $6.0 billion to $6.2 billion this quarter.

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 he expects Microsoft to earn $1.85 a share on sales of $27.7 billion. He had expected $2 on sales of $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, Wash.-based company will issue fiscal first-quarter earnings the week of Oct. 15, she said.

Microsoft said in July it expects earnings of $1.91 to $1.95 a share on revenue of $28.8 billion to $29.5 billion for fiscal 2002. A Thomson Financial/First Call poll of analysts has average estimates of $1.91 on sales of $29.1 billion.

Wendell Laidley, an analyst at Credit Suisse First Boston, lowered his estimates for Microsoft’s fiscal second quarter, which ends in December, to 52 cents a share on sales of $7.14 billion from 54 cents and $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 quarter.

Microsoft shares rose $2.30 to $52.01 on Nasdaq. The stock has risen 20% this year, making it the biggest gainer in the Dow Jones industrial average after AT&T; Corp.