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Microsoft: PC market "fundamentally healthy"

Executives insist the market for Windows is OK, having posted a 40-percent earnings increase, even though pricing pressure is eating away at industry's profits.

Microsoft continues to maintain that the PC market is "fundamentally healthy," even though one of its chief partners is reeling, according to the company's chief financial officer.

Compaq Computer, the largest provider of PCs that run Microsoft's Windows operating systems, rocked the computing world Sunday when it axed longtime chief executive Eckhard Pfeiffer in the aftermath of a series of fiscal missteps. Nevertheless, Microsoft executives insist the market for the company's operating system software remains healthy, even though pricing pressure is eating away at the PC industry's profits.

Microsoft posted a 40 percent increase in earnings earlier today, at the close of the market.

An increase in unit shipments along with a shift toward Microsoft's Windows NT Workstation operating system accounted for a 29 percent year-over-year increase in sales to third-party original equipment manufacturers, or OEMs, according to Greg Maffei, chief financial officer for the software giant.

Those OEMs include the likes of Compaq, Hewlett-Packard, which recently announced its intentions to restructure, and Dell Computer, which has seen its stock falter due to Wall Street concerns over future growth.

But Maffei, an ever-cautious executive, also said Microsoft remains intrinsically tied to the health of the PC industry, even though it has expanded far beyond its historic roots.

"I would love to say we're not dependent on PC growth, but that's not the case," Maffei said. "But if you took a five-year trend, we're less dependent on PC shipments than we were 5 years ago, when servers were not a substantial part of the business, [nor was our] nascent Internet business."

News.com's Stephanie Miles contributed to this report.