SHORT TAKES

MICROSOFT SAYS PROFITS WILL MISS FORECASTS

Seattle, WASH. — In an unprecedented earnings warning by the world’s top software company, Microsoft Corp. said that its quarterly profits would miss forecasts by 5 to 6 percent, dragged down by an industry-wide slump in consumer and business sales. The lower forecast rounded out a cycle of bad news for technology companies, including profit warnings by the world’s No. 1 PC maker Compaq Computer Corp. and the leading semiconductor manufacturer, Intel Corp. Microsoft, which makes the ubiquitous Windows operating system, projected Thursday that revenue for its second quarter ending Dec. 31 would come in at $6.4 billion to $6.5 billion, while earnings per share would be 46 cents or 47 cents, below the Wall Street consensus estimate of 49 cents per share. Microsoft projected earnings of $1.80 to $1.82 per share for the full fiscal year, below the average Wall Street forecast of $1.91 as compiled by First Call/Thomson Financial.

“We are seeing slowing global economic conditions, particularly in the U.S. Like many others in the industry, we are seeing accelerated slowing in PC sales as the quarter progresses,” Microsoft Chief Financial Officer John Connors told a conference call. “We are seeing some softness in the general level of spending in corporate IT (information technology) accounts, which is impacting our desktop software sales, and we are seeing an industry-wide slowdown in online advertising sales and subscription revenue growth, which is impacting our consumer segment,” Connors said. Microsoft also cut its revenue forecast for the full fiscal year to between $25.2 billion to $25.4 billion, about 5 percent lower than its previous estimate. The announcement after the close of U.S. markets knocked Microsoft shares down 6 percent to $52-1/4 in after-hours trading, their lowest level in a week. That followed a 3 percent drop to $55-1/2 in regular Nasdaq trading. Microsoft shares are down 8 percent this quarter and have tumbled from a year-high of $119-15/16 set last December. “This has the potential to freak out investors,” said Wit SoundView analyst Arnie Berman, saying the outright earnings warning cut to the core of Microsoft’s strong record of financial predictability. “It is certainly a watershed event.”

ORACLE PROFITS BEAT EXPECTATIONS

Palo Alto, CALIF. — Oracle Corp., the world’s No. 2 software maker, posted second quarter profits just ahead of the Wall Street consensus, helped by stronger-than-expected sales of its business management software. Oracle said its net income rose 62 percent to $623 million, or 11 cents per share, for its second quarter ended Nov. 30, from $384 million, or 6 cents a share, a year ago. Analysts had been calling for earnings of 10 cents per share, according to a survey by First Call/Thomson Financial. Redwood City, Calif.-based Oracle said revenues rose to $2.7 billion from $2.3 billion. “We’re already off to a great start … it looks like we’re going to have a very strong Q3,” Oracle founder and Chief Executive Larry Ellison said in a conference call with analysts.

Oracle’s sales of business management, or application software – closely watched by Wall Street – rose 66 percent to $279 million, coming in ahead of expectations. Analysts had expected sales to grow between 48 percent and 58 percent. Oracle stock, which had fallen 7/8 to $27-1/2 in regular Nasdaq trading, was $1 higher in after-hours trading. Shares remain well below a 52-week high of over $46. Wall Street has been fixed on Oracle’s applications software business and sales of its 11i e-business suite, which promises companies a way to manage all their disparate operations on the Internet. Applications are seen as key to Oracle maintaining its historic growth trajectory as the market for database software matures. “It was a good quarter not a great quarter,” said Thomas Weisel Partners Analyst Robert Schwartz, who said anticipated a stronger showing from Oracle’s core database business and noted a lack of notable customer wins for 11i. Oracle expects earnings per share in the third quarter of 12 cents per share, in line with Wall Street estimates, Chief Financial Officer Jeff Henley said in an interview. Henley told Reuters that second-quarter applications growth was strong across each geographic region and across all of the company’s product areas. He also told analysts that applications revenue growth could reach 75 percent or better in the third quarter.

RED HAT THIRD QUARTER REVENUE LEAPS 112%

Research Triangle Park, N.C. — Red Hat, Inc., a leader in developing, deploying and managing open source Internet infrastructure solutions, reported revenue of $22.4 million for the third quarter ended November 30, 2000, an increase of 112% versus the $10.5 million reported for the third quarter of fiscal 2000 and an increase of 21% over the second quarter of fiscal 2001. Gross margin was 60% for the third quarter fiscal 2001, versus 58% reported in the second quarter fiscal 2001 and 41.5% in the third quarter fiscal 2000.

The company reported an adjusted net loss of $900,000, or $0.01 per share, for the third quarter of fiscal 2001, compared to an adjusted net loss of $5.4 million, or $0.04 per share, for the third quarter of fiscal 2000. On a reported basis, the net loss was $21.4 million, or $0.13 per share, compared with a net loss of $6.3 million, or $0.05 per share. “We are seeing increasingly strong demand for Red Hat leadership solutions,” commented Matthew Szulik, President and CEO of Red Hat. “Solid results are being driven by customers consolidating their UNIX technologies to Red Hat Linux, increased demand from device manufacturers, and continued execution of a solid business model”.

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