Rick Sherlund Likely Quotations

significant bad news may likely already be reflected in the stock.

We are reducing our March quarter revenue estimate due to growing evidence that PC unit growth did not likely come up to our expectations. PC growth was very sluggish from November through February, and while it reaccelerated in March, it does not appear to have occurred fast enough to offset the weakness earlier in the quarter.

We are encouraged by this and have raised estimates, essentially back to earlier levels. While the stock is richly valued and the growth is still well below historic levels, we believe there is a good flow of upcoming new products and the shares are likely a relative safe harbor.

Extrapolating from Oracle as a bellwether for the rest of the software sector, we believe the September quarter results for the group will likely come in a bit shy of estimates,

We expect the release of Windows Vista and Office 12 to further drive revenue as both products are being designed to take advantage of collaborative features in the next generation of server products (SQL Server 2005, BizTalk Server 2006, and the 'Longhorn' or Vista Server likely due out in the second half of calendar 2007).

Consumer PC sales account for only about 10 percent of Microsoft's total revenues, so with corporate demand likely in line with expectations, our estimate revision is only relatively moderate,

Intel's pre-announcement will likely raise questions about the strength of Microsoft's March quarter.