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Microsoft Pri0

Welcome to Microsoft Pri0: That's Microspeak for top priority, and that's the news and observations you'll find here from Seattle Times technology reporter Matt Day.

October 22, 2008 at 9:49 PM

Microsoft earnings preview

Here’s an early look at expectations ahead of Microsoft’s fiscal 2009 first quarter earnings, due out after the closing bell Thursday. This story is running in Thursday’s paper:

While Microsoft has not officially lowered its financial targets, analysts think the economy has weighed on its fiscal first quarter performance, which the company reports this afternoon.

“We’re seeing massive deceleration in terms of buying intentions across tech in the last month or two as this global uncertainty has settled in,” said Brent Thill, director of software research at Citi Investment Research.

Thill and other analysts expect Microsoft and most of the technology sector to lower their growth forecasts for the remainder of the year. Specifically, Thill expects Microsoft’s PC growth forecast — a key driver of Windows sales — to be reduced, even though shipments in the latest quarter were stronger than expected.

Analysts at Friedman Billings Ramsey cautioned that management teams across the tech sector may be too optimistic.

“Our concern is that estimates may not come down enough, and we may go through a period of multiple downward estimate revisions, which is a difficult scenario for stocks to go higher,” the analysts wrote in a note to investors.

Thill said Microsoft should be able to protect its profits.

“We think that Microsoft can hold the bottom line better than most tech companies,” Thill said.

The company’s biggest costs are its employees. Last fiscal year, Microsoft added nearly 12,700 people, growing its global work force more than 16 percent to 91,259.

Thill isn’t expecting layoffs, but he does think the company will put the breaks on hiring. Employees have told The Seattle Times that various groups inside Microsoft have stopped hiring, at least temporarily.

“Obviously, given the economy, there is an attention to how companies can control costs and be prudent and Microsoft is doing that same thing,” said spokesman Lou Gellos.

There is no company wide hiring freeze, though Microsoft is beginning its annual mid-year review, during which various groups evaluate their direction for the year and make adjustments, he said.

Gellos said Microsoft will still hire thousands of people this fiscal year, but it probably won’t approach the pace of hiring last year.

Thill said Microsoft has another major tool to boost earnings per share, even if sales struggle: The company’s $40 billion stock buy back — “the single biggest buy back known to mankind,” as Thill put it — announced in September.

He expects Microsoft Chief Financial Officer Chris Liddell is using that allocation to aggressively buy Microsoft shares, which have been pummeled along with the broader market. The stock lost $1.83, or 7.8 percent, Wednesday to close at $21.53.

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