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Rough road for Microsoft?
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December 15, 2000: 4:41 p.m. ET
Some analysts see rough road ahead for PC-centric company in 2001
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NEW YORK (CNNfn) - Analysts on Friday expressed mixed opinions about Microsoft's growth prospects in the wake of the software giant's uncharacteristic profit warning.
The warning, issued after Thursday's close, was the latest in a string of such announcements from PC-related companies in recent weeks and drove the software giant's shares down to a near 12-month low of $48.81.
At issue is the potential for growth in the PC market, especially among consumers. As the largest supplier of PC operating systems and application software, the Redmond, Wash.-based company is particularly vulnerable to any weakness there.
Executives at Microsoft in Redmond, Wash., blamed the quarterly shortfall on a slowdown in PC sales which they said has been brought on by weakness in worldwide economic conditions. And while they said they were encouraged about the company's higher growth areas such as software products used on network servers, they acknowledged that the weakness is likely to continue through the remainder of fiscal 2001, which ends in June.
Melissa Eisenstat, software analyst at CIBC World Markets, pointed out that Microsoft's business remains closely tied to the PC, with 71 percent of its revenue derived from products for desktop computers.
However, she maintained a "buy" rating on the company's stock over the long term, saying that sales of Windows 2000, the company's latest operating system, is gaining traction as well as continued strength in corporate demand, which will improve the outlook over the next several quarters.
Microsoft's ".NET" strategy, under which the company is aiming to extend its Windows franchise onto the Internet, also could change the growth dynamic over time, Eisenstat said, although she noted that the strategy will take some time before it gains traction.
For the short term, though, Eisenstat warned investors to brace for some volatility. "We expect the stock to come under pressure until Microsoft reports their earnings on Jan. 18," she said.
 Eisenstat has set a 12-month price target of $58 on Microsoft shares, down $30 from the price target she had pegged for the stock prior to its earnings warning.
A host of other analysts lowered their price expectations for Microsoft's stock as well Friday, with most of them also predicting volatility in the stock over the short term.
Goldman Sachs analyst Rick Sherlund, who raised a red flag on Microsoft last week, said mounting concerns about the pace of the global economy and continued uncertainty about growth in the PC industry is likely to continue to weigh on Microsoft in the coming year.
"I think the Street's trying to figure out what is the long-term growth rate here," Sherlund said in an interview on CNNfn's "Digital Jam" program Thursday evening.
He also said the question of whether PCs will continue to be the center of the computing universe with the rising popularity of "information appliances" such as handheld computers, Web pads and Internet access terminals also could drag on Microsoft shares.
"I think to get really excited and passionate about the story, you want to see the company positioned to take better advantages of these Internet appliances," he said. "And for that, I think the .NET platform will be very important. But that's still a couple of years away."
Merrill Lynch's Christopher Shilakes also maintained a long-term "buy" recommendation on Microsoft shares but lowered his price expectation to $61 and adjusted his risk rating on the stock to "above average risk" from "low risk."
"We remain cautiously optimistic on Microsoft as the company slowly transitions itself from its reliance on desktop software and continues to roll out its higher growth, server side software," Shilakes said.
Salomon Smith Barney analyst Richard Gardner reiterated an "outperform" rating on Microsoft Friday and set a new price target of $60. He, too, stressed that it is likely things will get worse for Microsoft before they get better. (229K WAV) or (229K AIFF)
Elsewhere, Robertson Stephens downgraded its rating on Microsoft to "attractive" from "buy." Dresdner reduced its rating on Microsoft to "hold" from "buy." 
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