If Intel Warns, Can Microsoft Be Far Behind?

Speculation already is dogging Microsoft (MSFT) shares that the company will soon mimic its Siamese twin, Intel (INTC), and warn that it won't meet quarterly expectations.

Shares of the software giant dropped Thursday, closing lower $1.44, or 2.4%, to $59.25. In after-hours trading, Microsoft was down an additional 2.2%.

After the market closed Thursday, Intel cut its already-reduced first-quarter earnings and revenue projections, and announced the layoff of 5,000 employees, blaming the economic slowdown and continued drop in PC demand, among other factors. Chatrooms and message boards buzzed that Microsoft wouldn't be far behind, considering the two are so closely connected to each other and to the health of the PC industry.

In January, after Intel warned that it wouldn't reach revenue targets for its fiscal fourth quarter due to sluggish PC sales, analysts began trimming sales and earnings estimates for Microsoft. Within a week of Intel's preannouncement, Microsoft produced its infamous first-in-a-decade warning, citing similar reasons as the giant chipmaker.

Nearly 70% of Microsoft's sales are tied to PCs. The company's desktop software includes products such as Windows ME for consumers and Windows 2000 Professional and Office for corporate accounts. Last quarter the company suffered a slowdown in license-revenue growth for desktop applications such as PowerPoint and Excel. Desktop platforms and operating systems performed even more poorly.

Though Microsoft shares are dropping, "At 12 times revenue, it's no bargain stock because its growth has slowed to no higher than the low teens," said Nicholas Moore, portfolio manager at Jurika and Voyles.

And although Microsoft's legal troubles have been easing lately, said Moore, "It's hard to imagine that it would be a good quarter for Microsoft."

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