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Microsoft tumbles on cuts
December 7, 2000: 2:34 p.m. ET

Analysts trim software maker's revenue, profit outlook, cites slow PC sales
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NEW YORK (CNNfn) - Shares of Microsoft Corp. fell sharply Thursday after two leading brokerage firms trimmed their revenue and earnings estimates for the software maker, citing slowing retail sales of personal computers. At the same time, a Merrill Lynch analyst said he is guarded about Microsoft shares in the near term.

In afternoon trading, Microsoft (MSFT: Research, Estimates) shares fell $4.25 to $52.44 and were the most actively traded on Nasdaq.

graphicGoldman Analyst Rick Sherlund cut his revenue forecast for Microsoft's fiscal 2001 second quarter, which concludes at the end of December, by $125 million to a $6.77 billion to $6.8 billion range. Sherlund also cut his revenue forecast for the third quarter ending in March by $200 million and his forecast for the fourth quarter ending in June by $150 million.

The analyst also cut his earnings-per-share estimate for fiscal 2001 to $1.88 a share from $1.91 a share.

"Consumer PC sales account for only about 10 percent of Microsoft's total revenues, so with corporate demand likely in line with expectations, our estimate revision is only relatively moderate," Sherlund wrote in a research note. 

He kept his "market outperform" rating on shares of the Redmond, Wash.-based company.

"Microsoft's management has not changed its posture on the quarter, but we believe recent data suggests that Street estimates may need to come down," Sherlund wrote, citing recent data from PC manufacturers and retailers indicating flat to declining consumer PC sales.

Lehman Bros. analyst Mike Stanek cut his fiscal 2001 earnings to $1.88 a share from $1.91 a share and trimmed his revenue forecast to $25.9 billion from $26.5 billion.

Merrill remains guarded

Merrill Lynch analyst Chris Shilakes said in a research note issued Thursday that he "remains somewhat guarded on Microsoft in the near term and would be somewhat cautious about adding to positions in this environment."

"We believe Microsoft will be hurt by weakness in the consumer PC space, which represents roughly 10-15 percent of its business. As we have said, the shift to browser-based computing is slowing the need for upgrades, and perhaps the more sophisticated gaming platforms are removing the need for homes to have the latest high performance PC's.  As a result, corporate PC's will have to pick up the slack in the next quarter," Shilakes wrote.

The Merrill analyst retained his December quarter estimates of $6.8 billion in revenue and earnings per share of 49 cents. He added that "given events in recent weeks, our confidence in these forecasts is lowered." graphic


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