Microsoft could sidestep the PC slowdown that trampled other companies' earnings, analysts say. The company is expected on Thursday to report results in line with expectations or a penny short when it discloses earnings for its fiscal third quarter. A consensus of analysts polled by First Call predicts earnings of 42 cents a share. But the outlook for the remainder of the company's 2001 fiscal year, ending 30 June, is much less certain. Intel, which reported Tuesday an 82 percent decline in income, told Wall Street the worst of the PC sales crisis had ended. This could bode well for Microsoft. Market researchers Dataquest and IDC, however, are compiling preliminary first-quarter PC shipment statistics to be released later this week that are expected to reveal deep sales declines in the United States. In another sign of trouble, Hewlett-Packard on Wednesday said it would miss quarterly estimates, blaming slow consumer spending. Microsoft, one of the few high-tech companies not to issue a profit warning during the quarter, is weathering slow sales in part because of good fiscal management, say analysts. Merrill Lynch analyst Henry Blodget is convinced Microsoft will for this reason meet earnings-per-share estimates, even though he expects the company to miss sales goals. In a Monday research note, Blodget predicted third-fiscal quarter revenue of $6bn, far short of Microsoft's $6.3bn to $6.4bn prediction. "Microsoft's outlook of 42 to 43 cents reflects conservative expense assumptions... which provides the company with a cushion in the event of a revenue shortfall," Blodget noted. ING Barings analyst George Godfrey didn't share Blodget's optimism, predicting Microsoft would miss consensus estimates by a penny. In a Wednesday research note, Godfrey cut his third-fiscal quarter estimate to 41 cents from 43 cents and revenue projections to just more than $6bn from $6.25bn. If Microsoft meets estimates, much of the credit could go company chief financial officer John Connors. Connors took over as chief financial officer in December 1999, after the resignation of George Maffei. Since then, Connors has run a tight financial ship, following the pattern he established as Microsoft's chief information officer. There, through shrewd planning and consolidation, Connors shaved nearly $60m off the company's technology budget. Gartner analyst Chris LeTocq said Connors has good reason to hedge predictions. "With the new disclosure rules, chief financial officers are having to tread on eggshells every time they open their mouths." But Connors' conservative style, while an asset, may not be enough to guide Microsoft through the tough times ahead. Microsoft's dependence on PCs to sell software is expected to hurt the company's fiscal fourth quarter and linger into the first half of fiscal 2002. Much depends on whether PC sales rebound during the second half of calendar 2001 or not, Godfrey noted. "If the 'bottom' has been hit on PC shipments and the channel inventory is at a manageable level -- and it appears that it is -- we would expect a seasonally stronger second half of 2001 and first half of 2002 for Microsoft," he wrote. But Godfrey was cautious enough to cut his fiscal-fourth quarter 2001 earnings-per-share estimate to 44 cents from 42 cents. The consensus estimate, according to First Call, is 43 cents for the fourth quarter and $1.78 for the year. "While Microsoft is trying to diversify itself away from being dependent on the personal-computer market, for now, the fact remains that more than 65 percent of the company's revenue and an even greater percentage of profits -- over 70 percent -- comes from PC applications and operating systems," Godfrey wrote. Lehman Brothers analyst Michael Stanek also remained cautious, noting that "while PC [manufacturer] inventories are better, thus far there is no evidence of unit acceleration". Stanek, who expects Microsoft to meet estimates for the most recent quarter, cut his fiscal fourth-quarter sales estimates by $150m to $6.2bn and predicted earnings per share of 43 cents. But that figure, he wrote in a Wednesday research report, accounts "for some benefit from Office XP". Office XP, the successor to Office 2000, is expected to reach Microsoft's largest licensees later this month and go on sale at retailers on 31 May. Office, which accounts for more than half Microsoft's income, is seen as one of the most important upgrades the company will release this year. About 60 percent of customers use Office 95 or 97, leaving lots of potential Office XP buyers. "From Microsoft's perspective, this coming quarter and how well Office XP does is critical," LeTocq said. Blodget expects that Microsoft on Thursday may deliver its first earnings per share estimates for fiscal 2002, but he believes the news might not be good. "We expect [fiscal] 2002 outlook in the $1.70-$1.80 range, which would imply essentially no earnings per share growth," Blodget wrote. Part of the problem is Microsoft's Xbox video game console, which is slated for release this fall. Because the company isn't expected to break even on the product for another two years or more, it will be a drain on earnings. "We believe Xbox will generate an after-tax loss of between 10 cents and 12 cents a share," Blodget said. See techTrader for technology investment news, plus quotes and research. Have your say instantly, and see what others have said. Click on the TalkBack button and go to the techTrader forum Let the editors know what you think in the Mailroom. And read what others have said.