Investment Losses Hurt Microsoft EarningsInvestment Losses Hurt Microsoft Earnings

Microsoft reported last week that net income for its fiscal first quarter fell 42% as it wrote down $1.24 billion in money-losing cable and telecom investments, but the vendor says sales should chug along steadily despite declining PC sales.

Sales of Windows 2000 Professional Edition helped offset lower PC sales during the quarter, which ended Sept. 30, and sales of server applications and server operating systems grew robustly as well, says CFO John Connors. "Our server business is in high gear," he adds. However, Connors warns that PC sales will decline by 10% during Microsoft's 2002 fiscal year, which ends in June.

As a result, Microsoft (MSFT-Nasdaq) lowered estimates for its second quarter and for the full fiscal year. The software company now says operating income will rise 16% during the current quarter, if Microsoft meets the high end of its forecast. For the fiscal year, Microsoft says it expects revenue of $28.4 billion to $29.1 billion and operating income of $12 billion to $12.4 billion. That translates into an increase of 12% to 15% year over year.