Microsoft preaches caution, narrowly beats Wall Street estimates

Saturday, April 21st 2001, 12:00 am
By: News On 6

SEATTLE (AP) _ After surprising Wall Street by narrowly beating analysts' expectations for the third quarter, Microsoft Corp. offered words of caution about the company's future in an uncertain economy.

Chief financial officer John Connors said Thursday the Redmond, Wash.-based software giant would act conservatively, given the slump in the economy.

``We're very mindful of the slowdown in growth rates in the economy (and) we're very focused on what the PC shipment volume will be because obviously that's an important factor,'' Connors said.

Connors' comments didn't seem to worry investors. Shares of the software giant closed up 98 cents to $69.00 in trading Friday on the Nasdaq Stock Market.

Connors said Microsoft employees will be asked to tighten spending in the fiscal coming year but would not announce major layoffs or cutbacks.

``The economy is what the economy is, and we need to make sure that we don't cut back simply because the economy slows,'' he said.

Helped by strong sales of its Windows operating system for professionals and server products for businesses, the software company reported net income of $2.45 billion, or 44 cents a share for the quarter ended March 31. That compares to net income of $2.39 billion, or 43 cents a share, in the same period last year.

Analysts polled by Thomson Financial/First Call were expecting earnings of 42 cents a share.

Revenue rose to $6.46 billion for the quarter ended March 31, up 14 percent from $5.66 billion a year ago.

Jonathan Geurkink, vice president of research for Ragen Mackenzie in Seattle, said he did not expect the company's results given the economic climate.

``Just with the weakness in overall tech spending that we've seen and heard about, it's pretty remarkable that Microsoft's doing so well in this market,'' Geurkink said.

But Connors was cautious about the future. He said the company now believes PC sales slowed to 7 or 8 percent for Microsoft's fiscal year ending in June, and won't get better in the coming fiscal year.

Microsoft is still scheduled to launch a new version of its Windows system, called XP, in the second half of this calendar year, but Connors said it was too early to tell how slowing PC sales would affect that product's success.

``The first thing we've got to do is finish the product,'' he said.

He also cautioned that the company's Xbox games system, scheduled to be released in the fall, might not be as profitable in the short-term as some of the company's other products.

Jean Orr, an analyst with BlueStone Capital Securities, thought the company was likely trying to be especially conservative given the uncertain economic climate.

``I think that they just don't want expectations to be too high,'' Orr said.

For the fourth quarter ending in June, Microsoft expects earnings to be between $6.3 and $6.5 billion, or 41 or 42 cents a share.

For the coming fiscal year ending in June, 2002, the company is expecting revenue of $28 or $29 billion, and earnings of around $1.90 to $1.95 per share.

For the nine months ended March 31, the company reported net income of $7.3 billion or $1.31 a share compared with net income of $7.01 billion or $1.27 a share a year earlier.

Revenue for the nine-month period was $18.8 billion, up from $17.1 billion.