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Warning sinks Microsoft
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December 15, 2000: 4:45 p.m. ET
Software giant's stock tumbles after warning; drags down other techs
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NEW YORK (CNNfn) - Microsoft stock tumbled Friday after the software company issued its first sales and profit warning in 10 years, which comes amid slowing global sales of personal computers.
 Shares of Microsoft (MSFT: Research, Estimates) fell $6.31, or 12 percent, to close at $49.18, well below the stock's 52-week high of $119.94 reached last December. The stock is trading near its 52-week low of $48.43.
Microsoft, maker of the operating software that runs on the vast majority of the world's PCs, said revenue for its second quarter ending Dec. 31 is now expected at $6.4 billion to $6.5 billion, while earnings will come in at 46 cents or 47 cents a share. Those figures are 5 to 6 percent below the company's earlier guidance.
Analysts had forecasted Microsoft would earn 49 cents a share on sales of about $6.8 billion, according to First Call Corp., which tracks Wall Street forecasts.
Microsoft also projected earnings of $1.80 to $1.82 per share for the next fiscal year, below Wall Street's expectations of $1.91, according to the First Call survey.
The Redmond, Wash.-based company is due to report results on Jan. 18.
Analysts not surprised, given industry slump
Microsoft is the latest company in the computer industry to cite slowing PC sales and corporate spending for the shortfall. Similar warnings have come in recent weeks from Compaq (CPQ: Research, Estimates), Gateway (GTW: Research, Estimates) and Hewlett-Packard (HWP: Research, Estimates), as well as chip makers Intel (INTC: Research, Estimates) and Advanced Micro Devices (AMD: Research, Estimates).
Wall Street analysts promptly cut estimates for Microsoft, with Merrill Lynch analyst Christopher Shilakes also cutting his price target to $61 a share, and moving his rating to "above average risk" from "low risk."
"Microsoft's vulnerability to the PC market reaffirms our belief that Microsoft's continued success depends on its ability to transition itself from a desktop software company to an enterprise solution vendor," Shilakes said.
However, the analyst also believes that the "shortfall was widely anticipated and should mute a sharp sell off...we remain cautiously optimistic."
CIBC World Markets analyst Melissa Eisenstat estimated that as much as 71 percent of Microsoft's revenue is derived from desktop product sales, and while the company's server business is gaining momentum, it is not enough to offset the shortfall sparked by the slowdown in PC demand. 
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