Microsoft warns that profits will drop
Microsoft is the latest US computer-related company to warn that there will be little growth in the near future.
Although it's met analysts' forecasts with its second quarter profits, it predicts that the PC industry will grow at the "very low end" of a double-digit range up to June.
It believes that consumer demand will continue to outpace that of business customers.
The company posted second quarter profits of $2.62bn (£1.78bn) or 47 cents a share, up from 44 cents a year ago and in line with First Call consensus forecasts, on sales of $6.6bn up from $6.1bn.
In its outlook for 2001, the company said it expects to post third-quarter sales of 6.3-$6.4bn and earnings of 42-43 cents a share - analysts had been expecting 44 cents per share.
The group maintains its target for full-year sales at 25.2-$25.4bn and for EPS of 1.80-$1.82.
But chief financial officer John Connors warned: "While we are enthusiastic about the break-through products and services the company will be delivering in 2001, we remain guarded about the near-term economic outlook and its impact on PC demand and technology spending."
Microsoft's cost of sales is likely to rise slightly in its third-quarter to March 31 and continue to "tick up," while its gross margin will continue to decline as it "grows into lower margin businesses," Connors said.
"There is no question our margins will decline over time as we enter into businesses that have decent margins, but not OEM (level) margins," the CFO said, adding the company remains focused on growing its absolute sales.
"Margins will be what they will be if we get that absolute revenue growth."
Connors declined to give an outlook for 2002.
