MICROSOFT warns on first quarter earnings, revenue; seeks boost from Windows XP

<br>SEATTLE (AP) _ Despite its efforts to diversify into everything from game consoles to server software, in the end Microsoft cannot escape its dependence on one thing: the personal computer. <br><br>As

Friday, July 20th 2001, 12:00 am

By: News On 6

SEATTLE (AP) _ Despite its efforts to diversify into everything from game consoles to server software, in the end Microsoft cannot escape its dependence on one thing: the personal computer.

As the PC market continues to languish, the software giant on Thursday warned that its fiscal first quarter earnings and revenues will fall short of Wall Street's expectations.

``We believe P.C. shipments are likely to deteriorate before turning around in 2002,'' chief financial officer John Connors said in a call with journalists and analysts.

But the Redmond-based company tried to put a positive spin on the news, predicting that the company's new desktop operating system, Windows XP, would boost sales somewhat after the product is released in the company's fiscal second quarter.

Greg Vogel, an analyst with Banc of America Securities, said the warning makes it even more important to Microsoft for Windows XP to be successful when it is released in October.

``While XP looks to be a pretty strong product and a somewhat important upgrade ... there may not be enough to get (consumers) to run out and upgrade as they did with Windows 95,'' he said.

Connors said he hoped that some of the company's other ventures, such as the game console Xbox, due out in November, and the company's continued efforts to attract Internet users to its MSN products, also would help the company weather the economic storm that has hit the entire technology industry.

The sobering news came as Microsoft said it had barely eked out a profit of $66 million or 1 cent a share in its fourth quarter ended June 30. That compares with net earnings of $2.41 billion, or 44 cents a share, in the same period last year.

The earnings number includes a massive $2.6 billion charge for the quarter for poor-performing investments.

Shares of Microsoft fell $2.83, to $69.74, in after-hours trading after finishing the regular session on the Nasdaq Stock Market up $2.00 to $72.57.

Analysts polled by Thomson Financial/First Call had predicted earnings of 43 cents a share before the charge; Microsoft did not provide a comparable figure in its earnings release.

Revenues for the quarter ended June 30 were $6.58 billion, up 13 percent from $5.8 billion last year and in line with what Microsoft forecast last week.

Connors said he expected investors to be more focused on the company's strong revenue performance for the quarter, which was narrowly better than expected.

``In light of the current economic environment in the U.S. and worldwide, the fact that Microsoft has been able to grow revenue as well as operating income is viewed as quite positive in this market, and I think even any slight good news is well-received,'' Connors said.