Microsoft's shares have dropped five per cent on the news that its next quarter results will be lower than expected. Analyst figures suggested $7 billion in revenue but Microsoft has put it at around $6 billion to $6.2 billion. However, it expects increased growth for the whole year.

Announcing its annual results, the software giant said that sales were still strong - Windows 2000 Professional in particular - but fiscal 2001 has seen weak growth in PC sales. As for next year: "We expect PC demand to be flat in fiscal 2002 and then to improve," said CFO John Connors.

The fourth quarter results were as Microsoft announced last week: revenue up 13 per cent (year-on-year) to $6.6 billion (£4.7 billion); operating income up 7.4 per cent to $2.7 billion but net income reduced to $66 million thanks to a $2.6 billion charge for "investment impairments".

As for the year, total revenues were up 10 per cent to $25.3 billion; net income down (again thanks to the charge) to $7.3 billion from $9.4 billion last year.

However, the projected revenue for 2002 is between $28.8 billion and $29.5 billion, an increase of around 15 per cent over 2001. This will be mostly due to the release of MS' new products: Office XP, Windows XP, the Xbox console and new elements of .NET.

The city is not renowned for its long-term view however and the Q1 revenue warning saw shares drop over $3 to $69.20. Share price had speculatively gone up the day before by $2, so in effect they have dropped $1.

"We reported another quarter of strong revenue growth and operating income results. Even in this challenging economic environment, we saw solid customer enthusiasm for our broad array of products and services, which drove positive growth across all our businesses," said Connors.

He has a point. Just about every IT company has released poor results this year, with many laying off large numbers of staff. Microsoft has warned of a 12 per cent drop in revenue for this quarter. ®