Microsoft Lowers Revenue and Earnings Expectations

REDMOND, Wash., Dec. 14, 2000 — Microsoft Corp. today announced that revenue and earnings for its second quarter ending Dec. 31, 2000, will be below the company’s previous expectations. Revenue for the second quarter is now expected to be in the range of $6.4 to $6.5 billion, and diluted earnings per share is expected to be $0.46 or $0.47. The revised expectations for both revenue and earnings per share represent a reduction of five to six percent from prior guidance.

The company also announced revised revenue and earnings guidance for the remainder of the current fiscal year. Based on the company’s current economic outlook, full-year fiscal 2001 revenue is now expected to be in the range of $25.2 to $25.4 billion, about five percent lower than previous expectations. Diluted earnings per share for fiscal 2001 is expected to be in the range of $1.80 to $1.82.

Actual results for the quarter ending Dec. 31, 2000, and further details on the company’s expectations for the remainder of the fiscal 2001, will be reported on Jan. 18, 2001.

“We believe, like many other technology companies, that the current weakness in worldwide economic conditions is resulting in a slowdown in PC sales, corporate IT spending, and consumer online services and advertising. Accordingly, we are adjusting our revenue and earnings expectations for the current quarter, and for the balance of the fiscal year,” said John Connors, chief financial officer, Microsoft. “However, while our short-term results will continue to be affected by the current economic environment, our long-term outlook on the information technology market and the PC industry remains positive. We have a lineup of new products and technologies that are receiving rave reviews from customers, and we continue to be very excited about the progress we are making across all our businesses.”

Microsoft will hold an audio webcast at 2 p.m. PST (5 p.m. EST) today with John Connors to discuss additional details regarding the company’s revised expectations and other forward-looking information. The session may be accessed at . The webcast will be available for replay through the close of business on Friday, Dec. 22, 2000.

This press release contains statements that are forward-looking. These statements are based on current expectations that are subject to risks and uncertainties. Actual results will vary because of factors such as PC shipment growth; technological shifts; customer demand; competitive products and pricing; product mix; product ship schedules; life cycles; terms and conditions; litigation; and other issues discussed in the company’s Form 10-K and other SEC filings.

Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services and Internet technologies for personal and business computing. The company offers a wide range of products and services designed to empower people through great software – any time, any place and on any device.

For more information, financial analysts only:

Carla Lewis, senior director, Investor Relations (425) 936-3703

For more information, press only:

Caroline Boren, Waggener Edstrom, (425) 637-9097, [email protected]

Katy Fonner, Waggener Edstrom, (503) 443-7000, [email protected]

Note to editors: If you are interested in viewing additional information on Microsoft, please visit the Microsoft Web page at on Microsoft’s corporate information pages. Shareholder and financial information as well as today’s 2 p.m. PST (5 p.m. EST) conference call with investors and analysts is available at .

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