Skip to main content


(MSFT) - Get Microsoft Corporation Report

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

after the announcement.

The announcement came after days of

speculation that Microsoft would do just that. After all, several PC makers, including



had warned. And


(INTC) - Get Intel Corporation Report

cited weak PC sales when it

warned last week.

Scroll to Continue

TheStreet Recommends

In after-hours trading, Microsoft was changing hands at $51.77 a share on the


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



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




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


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


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.