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sneezed three months ago, the rest of the tech industry caught cold. The reason: Disappointing guidance convinced investors that the IT spending slump wasn't over.

"Microsoft tends to be a little out of synch with other companies -- they touch the market in so many places that they feel things a few quarters before the rest of the industry," said First Albany analyst Mark Murphy. First Albany has no banking relationship with Microsoft.

When the world's largest independent software company reports fiscal third-quarter earnings Tuesday, guidance for the future will be of more interest than the actual results -- unless there's a big surprise. Most analysts figure there won't be, and believe Microsoft performed about as expected during the March quarter.

But many of the same analysts figure that guidance going forward, particularly for fiscal 2004, could well be cautious. If guidance is even more conservative than expected, tech stocks are likely to take a hit after the close -- particularly if


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, which also reports Tuesday afternoon -- repeats its conservative

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guidance of three months ago.

The consensus of analysts polled by Thomson Financial/First Call is for third-quarter earnings of 24 cents per share (split-adjusted) on revenue of $7.7 billion. Both figures are very close to the guidance issued by Microsoft in January.

One area to watch carefully is unearned revenue, called deferred revenue by most other companies. Unearned revenue (license income that is recorded but not booked until a future quarter when licenses are actually used) spiked during the first quarter, as tough new licensing rules prompted customers to upgrade.

Once the surge ended, unearned income declined by $295 million in the second quarter to $8.84 billion, and is likely to be either flat or down a few percentage points sequentially in the third quarter. "We believe a drop in excess of $300 million would concern investors, as it would indicate a greater-than-expected slowing of subscription sales," analyst Brian Skiba of Deutsche Bank Securities wrote in a note to clients on Monday.

Microsoft's guidance for the full fiscal year 2003 (ending June 30) is for revenue of $31.9 billion to $32.1 billion and earnings per share of 95 cents to 97 cents. Wall Street expects earnings of $1.02 on revenue of $32 billion. If Microsoft gives guidance for fiscal 2004, it may well be fairly conservative. For now, Wall Street expects the company to earn $1.08 per share on revenue of $34.8 billion.

Guidance much below that number -- especially if Intel guides as conservatively as it did in January -- is likely to push Microsoft and other tech stocks sharply lower, as happened at the beginning of the year.

It's worth noting, however, that Microsoft was quite conservative during the January earnings call, and some of that caution is already factored into the price of the stock. "Overall, expect prudent, conservative guidance, talk about a tough IT environment and a difficult FY '03 compare," said Skiba. Deutsche Bank has a recent banking relationship with Microsoft.

Also key is Microsoft's commentary on the PC market. "We expect the company to maintain its cautious guidance regarding PC shipments -- extending its guidance of low- to mid-single-digit growth to at least the end of the calendar year," wrote analyst Victor Raisys of Soundview Technology Group, which does not have a banking relationship with Microsoft.

Meanwhile, Microsoft last week cut prices on Xbox game consoles in Europe and the U.K., and is expected by analysts to cut U.S. prices by the time the premier gaming show E3 opens next month.

If the price cut does what it is designed to do -- increase sales -- the paradoxical effect will be a hit to the company's earnings, since Microsoft was losing an estimated $100 on each unit sold under the older pricing schemes. Slower-than-expected sales will mean better overall earnings. However, since Microsoft's profits are so high, neither Xbox scenario will make a very significant difference to the bottom line.