PALO ALTO, Calif. (CNN/Money) -
As if the personal computer business didn't have enough bad news already, Microsoft just supplied more.
Wall Street decided things could have been worse and bid up Microsoft's shares Friday even though the company missed its earnings projections and lowered its revenue guidance. But the message to the industry -- and, for that matter, to the broader high-tech industry -- was clear: Slow growth is here to stay. Indeed, Microsoft (MSFT: Research, Estimates) isn't even looking for the beginning of the PC pickup until the first half of 2003, a full year from now.
"Given that many PC vendors and chip suppliers are looking for a PC upgrade cycle to start in the (second half) of this calendar year, this is somewhat sobering," writes Daniel Niles, an analyst with Lehman Brothers in San Francisco. "What is notable is that this is more cautious than the other truly dominant supplier to the PC industry, Intel (INTC: Research, Estimates). They had comparable revenues of $6.8 billion for their March quarter but are forecasting revenues down only $100 million quarter over quarter, or 1 percent," compared with Microsoft's projection of a decline by as much as 3.5 percent. "As we said when (Intel) reported, we believe they are being too optimistic."
And the news isn't much better when you listen carefully to other high-tech biggies selling products with presumably better growth prospects than PCs. Sun (SUNW: Research, Estimates) Microsystems is cutting 1,000 more jobs through attrition. Compaq (CPQ: Research, Estimates) says its services business, the corporate bright spot, is wavering. Sickly Nortel will cut 4,000 more employees than previously expected. "Dismal," is how Microsoft Chief Financial Officer John Connors described the goings-on at the competition. Indeed, one way mighty Microsoft made its numbers as good as possible was by slicing costs. SG Cowen analyst Drew Brosseau told the [ital]Wall Street Journal[ital] that Microsoft's operating expenses were $330 million below what he forecasted they'd be in the quarter.
Microsoft will continue to prosper for two reasons. It makes so much margin on its software that it will generate tons of cash no matter how anemic growth is. It's also investing heavily in future blockbusters, like Xbox games, even though the payout is getting further and further away. The question is to what extent the rest of the PC players can find their way out of the hole Microsoft is describing.
With no solid end to the slow growth in sight and major companies slashing costs, the picture isn't pretty.
How the name game is played
Some marketeer at Accenture (ACN: up $1.38 to $24.48, Research, Estimates), must have been delighted to read the reference to the firm in last Sunday's New York Times Magazine. Writing intelligently about efforts in Silicon Valley to develop security-related software, legal-affairs reporter Jeffrey Rosen notes that "federal aviation authorities and two technology companies called Accenture and HNC Software are planning to test at airports a profiling system designed to analyze each passenger's" personal data.
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RECENTLY BY ADAM LASHINSKY
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No business reporter would have passed on the opportunity to note that Accenture, a management consulting company, is the former Andersen Consulting, once a sister firm to troubled accounting firm Arthur Andersen. So whatever Accenture spent for its re-do was worth it. (Challenge: Just try to find a reference to Andersen at the "About Accenture" home page or even on the "Our History" site. Fuhgetaboutit.)
Incidentally, a boffo hedge-fund source of mine -- and one who likes to go short more than long -- is keen on San Diego-based HNC Software (HNCS: unchanged at $18.94, Research, Estimates), precisely because of the above-noted project. Investors generally haven't caught on to the HNC story yet, so there's your small morsel of optimism for the weekend.
Adam Lashinsky is a senior writer for Fortune magazine. Send e-mail to Adam at adam_lashinsky@timeinc.com.
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