On Friday, Microsoft Corp shares were looking as groggy as the French franc did after George Soros told Reuter that since the Bundesbank had effectively sunk the European Monetary System, he had no compunction about getting back into the market and selling the French currency. The shares were off $6.50 at $72.50 after a string of analysts downgraded their forecasts for the company and the Chicago Tribune reported that the Justice Department was to review the Federal Trade Commission deadlocked examination of the company’s practices. Microsoft chairman Bill Gates dismissed the latter, saying the probe into alleged anti-competitive practices had raised no troublesome issues, but he accused rival Novell Inc of pressuring the Trade Commission to keep the inquiry open. Gates said that after an investigation lasting more than three years there has been nothing that has come up that causes us the slightest concern. He told analysts that Novell had been lobbying the agency to proceed with its investigation, saying Novell was seeking to promote its own DR-DOS as a substitute for Microsoft’s MS-DOS. The goal here is to get us to raise our price (so Novell could sell its DR-DOS at a higher price), said Gates, who objected that Novell now had broad hegemony over networking of personal computers, with Microsoft as its only competitor. The only issues are being sold heavily by Novell, he said. Perhaps you are getting the idea that we’re disappointed by the way that Novell is persuing this. The bigger concern among analysts was the prospect for Microsoft Corp’s numbers, and vice-president of finance and treasurer Mike Brown said he is comfortable with earnings per share estimates of $0.75 to $0.80 for the current first quarter of fiscal 1994 but told analysts that estimates of $3.80 a share for the fiscal year to June 30 1994 were high.

Not willing to lose market share

Microsoft earned $3.15 a share in fiscal 1993. He doesn’t expect the company’s revenues to grow by as much in fiscal 1994 as the 27% it achieved in the fourth quarter of last fiscal – and that figure represented a slowdown on performance earlier in the year. Indeed Brown said the company does not expect first quarter revenues to exceed the $1,000m achieved in the fourth quarter. Microsoft has frequently cautioned Wall Street over the years about expectations for declining growth rates, but this year analysts said they expect growth in earnings and revenues may slow to the 20% range from rates of 50% or more in past years. We do not expect our historical high growth rates to continue, Brown said. He expects revenues from new products in fiscal 1994 to be in the 45% to 50% of total revenues and noted that a year ago, the company had projected new products would contribute 35% to 40% of total revenues in fiscal 1993. Brown said European sales had declined about 12% between the third and fourth quarter. While he does not expect a specific decline of the level in the first quarter, he does expects a further fall, partly offset by increases elsewhere in the world. At the meeting, the company’s executive vice-president of sales and support Steve Ballmer said sales of Windows have exceeded 1.5m copies a month, but added higher penetration levels would provide less potential upside growth in fiscal 1994. Net and net, it’s a year of stability more than likely, Ballmer told analysts. Ballmer also said the company’s pricing policy will be guided by its desire to maintain market share. We are not willing to lose market share, that will guide our pricing actions, he said after recounting several cases of extreme discounting by competitors. Ballmer said he expects pricing pressure to continue, adding that prices could remain stable in the coming year or decline. He warned that average software prices across the industry would definitely not increase over the time period. Sales of Microsoft’s Access and FoxPro databases have captured more than 50% market share over the past six months, with total sales of more than 1.5m copies, he says. On the hot products from, Ballmer

also noted the company plans no new versions of its MS-DOS or Windows software in fiscal 1994 and could face mounting pressure from operating system competitors, such as Novell Inc and IBM Corp – and despite all the hype, Windows NT is not going to be a big moneyspinner anytime soon, if ever. We expect this business (operating systems) to be smaller than it was this year, he said. Microsoft previously said it expected the size of operating systems as a percentage of total revenues would decline by a few points to about 31%. Ballmer was nevertheless confident about the breadth of its products, including those to be introduced over the next 12 months. We will increase our market share, he told the analysts. We are committed to that. Analysts also say Microsoft told them that the new version of Windows – Chicago is expected to ship in the second half of next year. Microsoft also is also trying to restrain growth in its payroll by moving more staff around.