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By Sally Watson, 20 July 2001 08:00

NEWS Microsoft shares suffered a knock last night after the software giant predicted a slowdown in sales for its next quarter ending September. The company announced better than expected fourth quarter results, with operating profits hitting $2.7bn, up from $2.5bn last year. Microsoft will be pleased with its performance in what is typically the slowest sales period of the year. The company credited strong demand for Windows 2000 and an improved range of server products for its success. But overall the balance sheet for the quarter looked less healthy after including expected cable and telco investments of £2.6bn, leaving the company just $66m in profit. The software giant will be disappointed with sales in Europe, Middle East and Africa which dropped one per cent over the last three months, a decline the company blamed on the unstable economic climate. For the full financial year 2001, the Redmond firm reported net income of $7.3bn. Revenues were up 10 per cent on the previous year at $25.3bn. In a conference call to analysts, chief financial officer John Connors said sales for the next quarter - Q1 2002 - would be between $6bn and $6.2bn, slightly less than expected. He blamed weak growth in PC sales. "We expect PC demand to be flat in fiscal 2002 and then to improve," he said. The company's pessimism will be backed up today by IDC and Dataquest. Both research companies are expected to report a drop in worldwide PC sales over the last three months. Dataquest's figures show international PC shipments fell 1.9 per cent from last year, to 30.4 million units, the first time since 1986 that worldwide sales have fallen. Microsoft ended its conference call on a brighter note however, projecting revenues for the next year will grow by up to 16 per cent to almost $30bn.