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EARNINGS REPORT The Next Problem Microsoft Faces: A Drop In Earnings.(INTERNET & TECHNOLOGY)

Investor's Business Daily

| July 02, 2001 | COPYRIGHT 2001 Investor's Business Daily, Inc. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan.  All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)Copyright

Byline: Patrick Seitz

The biggest challenge facing Microsoft Corp. isn't its ongoing legal woes, but its declining earnings.

The Redmond, Wash., software titan is set to post its first-ever drop in earnings per share this month.

First Call estimates that Microsoft's earnings will fall 5% to 42 cents a share in the quarter ended June 30, compared with the same period last year. It earned 44 cents a share in last year's June quarter. Microsoft on July 19 will issue results for the quarter.

"Microsoft is a mature company at this point. The days of 30% earnings growth are probably behind it," said Brendan Barnicle, an analyst with Pacific Crest Securities.

Last week, Microsoft celebrated a partial victory in its appeal of the government's antitrust case. The U.S. Court of Appeals for the District of Columbia Circuit on Thursday reversed a lower court's order that would have split the company in two.

But the appellate court affirmed a ruling that Microsoft illegally maintained its monopoly in the personal computer operating system market by bullying PC makers, Internet service providers and others.

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