Goldman Sachs cuts Microsoft estimates on PC worries

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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 nearly 5 percent, off 2.81 to 53.88 in pre-session trading.

In a research note, Sherlund said he now expects December quarter revenue to be lower by $125 million, knocking sales to the $6.77 million to $6.8 billion range. The new number reflects an 11 percent rise year-over-year versus the previous 13 percent target. Revenue 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. Sherlund cut Microsoft's earnings per share from $1.91 to $1.88 for fiscal year 2001.

"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 that he believes Windows 2000 adoption continues to gain traction in the market, adding strength to corporate demand, but notes that this may not be enough to offset a weaker consumer sector.

It wasn't hard for Sherlund to extrapolate that PC sales are weak. In recent days, Apple Computer (Nasdaq: AAPL), Gateway (NYSE: GTW) and Micron Electronics (Nasdaq: MUEI) 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 Intel (Nasdaq: INTC) due to 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 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."

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