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Microsoft settles confusion over outlook

The software giant's CFO settles a debate on Wall Street over the company's business prospects--a debate he set off after mentioning its outlook at a conference.

Did Microsoft confirm its financial expectations for the fiscal year or didn't it?

"No!" was the simple reply from Microsoft Chief Financial Officer John Connors on Thursday at the Salomon Smith Barney Tech2001 Industry Conference in New York.

That reply has apparently settled a big debate on Wall Street on Thursday about the software giant's business prospects, a topic almost as hot as the Justice Department's decision not to break up the company.

At issue was whether Connors, while speaking at Wednesday's SG Cowen technology conference in Boston, reaffirmed estimates or just didn't change the company's outlook.

At the event Connors said Microsoft's outlook for fiscal year 2002 hasn't changed since its July analyst meeting, when the company predicted revenue between $28.8 billion and $29.6 billion and earnings per share between $1.91 and $1.95.

The distinction is slight, but it was enough to affect Microsoft's shares.

On Wednesday, Connors' comments were interpreted to mean the company reaffirmed its outlook, so investors cheered. They sent Microsoft stock up about 3 percent in late afternoon trading Wednesday, and it closed up $1.64 at $57.74. Now that Connors has clarified his statement, Microsoft shares dropped nearly 3 percent, closing at $56.02 Thursday, down $1.72.

A Microsoft spokeswoman on Thursday said the company had not "reaffirmed" its estimates and that Connors simply meant that the guidance had not changed from when it was previously issued. She said if Microsoft reaffirmed its estimates that would be considered a material update to investors, meaning the company was saying something new about its business. She didn't consider Connors' comments an update.

The discrepancy is largely one of semantics, but investors, who were already nervous about the software market, took notice. Software stocks tanked after Manugistics Group on Wednesday announced that its second-quarter results would come in way below expectations due to the struggling economy.

Word from a bellwether like Microsoft always has the potential to swing the market, so investors can be excused for heavily scrutinizing any tidbits from the company.

Earlier Thursday, Salomon Smith Barney analyst Richard Gardner said in a research note that during a dinner meeting with Connors, the CFO "was very clear" that he had not reaffirmed estimates. "He simply commented that Microsoft has not updated its guidance since July," Gardner wrote.

Gardner added that Connors reiterated Microsoft's belief that PC unit shipments are likely to grow in the mid-single digits during fiscal 2002, compared with analyst predictions of 10 percent growth.

"He was concerned that there was a misinterpretation of his comments," Gardner said of Connors. "I don't think this should be considered a negative sign."