Goldman, Sachs & Co. Investment Research
 
Lowering Microsoft March quarter revenue estimate due to sluggish PC demand
 
 * * FULL ACTION in the A.M. - U.S. * *
 
 New York Investment Research (New York) - - Investment Research
 
===================== NOTE 7:51 AM April 12, 2000 =====================
 
17 Microsoft Corp. (MSFT) $83.88
 Lowering Microsoft March quarter revenue estimate due to sluggish PC
 demand.
 Rick G. Sherlund (New York) 1 212 902-6790
 Nils Tristan (New York) 1 212 902-4077
 
 EPS (FY Jun): 2000E US$1.69, 2001E US$1.93 - Recommended List
 
* We are reducing our March quarter revenue estimate due to growing
 evidence that PC unit growth did not likely come up to our expectations.
 PC growth was very sluggish from November through February, and while
 it reaccelerated in March, it does not appear to have occured fast
 enough to offset the weakness earlier in the quarter. We have reduced
 our revenue estimate to $5.75 bil from $5.95 bil, representing 25%
 growth, (or 15% excluding upgrade coupons last year). This reduction
 represents only about $0.02 in EPS, which may likely be offset by gains
 in the investment portfolio, so no actual EPS changes. This is a further
 negative for sentiment in a poor tech market, but remains on Rec. List.
* Corporate PC demand (about 35% - 40% of total PC demand) is estimated to
 have shown no growth in November through February, likely due to the
 combined effects of component shortages (principally in the December
 quarter) and Y2K related issues (likely most severe in January and
 February). While demand appears to have picked up in March, it appears
 that it may have come back quite late in the quarter and not in time to
 bail out an already challenging quarter. Microsoft had a difficult
 December quarter as well, and management expressed some degree of
 optimism that it could regain momentum in March and offset the weakness
 earlier in the quarter. Lately, however, investors have come to
 question whether Microsoft might have fallen short of revenue
 expectations (see our April 10 comments), and our conversations with our
 hardware and component analysts is beginning to build our conviction
 that PC demand was just not strong enough in the quarter to meet
 expectations. Management refuses to comment before the April 20th
 report date.
 
Important Disclosures (code definitions attached or available upon request)
MSFT  : CF, CS, M