And Then Came Microsoft: Tech Giant Joins the Preannouncement Crowd

Microsoft(MSFT Quote) finally put its tail between its legs with the rest of the tech big dogs Thursday when it warned investors that it won't meet earnings and revenue expectations for its fiscal second quarter and fiscal year 2001.

The warning -- Microsoft's first since March 1989 -- was so unusual that a representative from the company's outside public relations agency didn't know about it Thursday afternoon when she called TheStreet.com after the announcement.

The announcement came after days of speculation that Microsoft would do just that. After all, several PC makers, including Gateway(GTW Quote) had warned. And Intel(INTC Quote) cited weak PC sales when it warned last week.

In after-hours trading, Microsoft was changing hands at $51.77 a share on the Island trading system after finishing regular trading at $55.50.

In a conference call following the announcement, Microsoft Chief Financial Officer John Connors cited the desktop software and consumer sectors as the chief culprits behind the preannouncement.

Desktop software, which includes products such as Windows ME for consumers and Windows 2000 Professional and Office for corporate accounts, makes up nearly 70% of Microsoft's overall revenue. Connors said he's seeing a slowdown in license revenue growth for desktop applications like PowerPoint and Excel and that these sales are faring worse than desktop platforms, or operating systems. He blamed the economic slowdown and decreased information technology spending.

On the consumer side, Connors said revenue growth at the company's online MSN was slower than projected due to weak subscription growth and advertising.

Given all this, Microsoft now expects revenue in the second quarter ending Dec. 31 of $6.4 billion to $6.5 billion, and earnings of 46 cents or 47 cents a share. Analysts had expected revenue of $6.77 billion and earnings of 49 cents a share, according to First Call/Thomson Financial.

For the year ending in June, the company also said it expects revenue to be between $25.2 and $25.4 billion and earnings per share to come in at $1.80 to $1.82. Analysts had expected it would record revenue of $26.37 billion and earn $1.91 a share.

Connors said the enterprise software that runs corporate computing systems has been less affected by the weakening economy than other segments. In addition, the newly released BizTalk server is winning customers. He also asserted that the PC slowdown shouldn't affect Windows 2000 sales, which are in line with expectations.

In addition, Connors said that the company doesn't plan any writedowns in its investment portfolio, and he maintained the company's projection of $800 million in investment income this quarter.

But Connors wouldn't offer any guidance on fiscal 2002 until the company reports second-quarter results on Jan. 18.