Microsoft warns that second-quarter sales and earnings will be 5% to 6% below expectations due to slowing computer sales.
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The largest elephant of the technology herd has finally been shot and wounded. Microsoft (Nasdaq: MSFT) announced this evening that its second-quarter sales and earnings will slip as much as 6% below estimates due largely to slowing personal computer (PC) sales. As precursors to today's news, Intel (Nasdaq: INTC), Compaq (NYSE: CPQ), Dell (NYSE: DELL), and other PC leaders have already forewarned of slow sales. Although Microsoft is masterful at managing expectations and then exceeding them, the slowdown in the PC industry is apparently too significant for any massaging of quarterly numbers to conceal. Microsoft stated that sales are slowing most on the consumer and desktop side, rather than the corporate platform side, although both businesses are weaker than originally expected. Sales for the second quarter ending December 31 are now expected to be about $6.45 billion, up from $6.1 billion last year in the same quarter, while earnings per share will be near $0.47, up from $0.44 last year. Microsoft also stated that the results from its online MSN service will be short of expectations due to an advertising and subcription revenue slowdown. Yahoo! (Nasdaq: YHOO), one of the best indicators for the strength of online advertising sales, has suffered due to concerns (and the reality) of slowing online ad sales. This week, advertising-solutions leader DoubleClick (Nasdaq: DCLK) also warned of weak results. One of the better lessons that investors might learn (or re-learn) from the past few months is related to the domino effect: Often weaker companies are the first to feel the hurt of a slowing economy or problems in a sector. In other cases, the "front-end" companies on the battle line are the first to be hit, and thus can be good indicators of things to come. In this case, the computer box and chipmakers have been struggling since summer to meet estimates: Dell and Intel included, and Advanced Micro Devices (NYSE: AMD) most recently. The Fool's "Breakfast with the Fool" will have more on Microsoft in the morning. Today, before this news, Motley Fool Research wrote about Microsoft, too, asking whether it's a safe buy. To discuss the news with other investors, visit the Fool's Microsoft discussion board.
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