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Analyst trims forecast for Microsoft

Citing the "preponderance of evidence" of sluggish PC demand, Goldman Sachs reduces its sales and earnings targets for the software maker.

Citing the "preponderance of evidence" of sluggish PC demand, Goldman Sachs reduced its sales and earnings targets for Microsoft on Thursday while maintaining a rating of "market outperform" on the stock.

Goldman Sachs analyst Rick G. Sherlund, noting that consumer PC sales make up only 10 percent of Microsoft's total revenue, made what he termed a "relatively moderate" estimate revision. Shares of the company dropped more than 6 percent in heavy trading Thursday, closing down $3.56 to $53.13.

The downgrade, one of several announced Thursday affecting major technology makers, helped to drive the Nasdaq Composite Index down 55.57, or 1.99 percent, to 2.740.93.

In a research note, Sherlund said he now expects December-quarter revenue to be lower by $125 million, knocking sales to the range of $6.77 million to $6.8 billion. The new number reflects an 11 percent rise year over year, compared with the previous target of 13 percent. Revenue estimates for the March and June quarters were cut as well, by $200 million and $150 million, respectively.

In recent quarters, Microsoft has projected sales growth in the mid-teens.

For fiscal 2001, Sherlund cut Microsoft's earnings per share from $1.91 to $1.88.

"Management of Microsoft is disclosing far less data about the monthly tone of business, so we have extrapolated from industry trends without implying as much precision in our estimates as we might otherwise be able to offer if management were willing to comment," Sherlund wrote in his research note.

Sherlund also said Windows 2000: The next generationhe believes that the Windows 2000 operating system continues to gain traction in the market, adding strength to corporate demand, but noted that this may not be enough to offset a weaker consumer sector.

It wasn't a stretch for Sherlund to extrapolate from the industry's trend toward weaker PC sales. In recent days, Apple Computer, Gateway and Micron Electronics have all issued profit warnings.

On Wednesday, Salomon Smith Barney lowered its estimates for the other half of the Wintel juggernaut. Salomon cut estimates for chipmaker Intel because of the PC slowdown. Analyst Jonathan Joseph cut revenue estimates for the December quarter from $9.1 billion to $8.9 billion, with earnings per share lowered from 42 cents to 39 cents. He also cut earnings per share for fiscal year 2001 from $1.55 to $1.50.

Joseph said Intel's fourth quarter is shaping up to be "its worst in over a decade."