NEW YORK — Since it first sold shares to the public 14 years ago, Microsoft has become more than a software company.

As it turned in steady increases in profit and revenues quarter after quarter, year after year, Microsoft convinced an entire generation of investors that no price was too rich to pay for a leading technology company. Sure, Microsoft's stock price always seemed expensive relative to its current earnings. But a year or two later, those earnings were much higher, and so was Microsoft's stock.

No more.

For the first time in more than a decade, investors have had to confront the reality that even Microsoft sometimes misses its mark. And they are not happy.

Microsoft shares fell more than 15 percent Monday after investors digested the company's earnings report for the quarter ended in March and realized that operating profit was short of analysts' estimates, although net income was slightly ahead of expectations thanks to gains on its investments. In addition, Microsoft encouraged analysts to cut their earnings and revenue estimates for its fiscal fourth quarter, which ends in June, as well as all of fiscal 2001.

The disappointing news on earnings was compounded by reports Monday that the Department of Justice may try to resolve its antitrust case against the software maker by splitting Microsoft into two or more companies. With many technology stocks in a monthlong swoon, jittery investors shed Microsoft shares with extreme prejudice. By day's end, Microsoft had fallen $12.3125 to $66.625 in heavy trading, with more than 155 million shares changing hands. The decline shaved close to $70 billion off the company's market valuation, a drop larger than the total market capitalization of General Motors.

Microsoft's fall triggered a rout in many technology stocks, with the technology-rich NASDAQ composite index closing Monday at 3,482.38, down 161.50. That puts the index at its lowest level since a 9.7 percent plunge 10 days ago left it at 3321.29.

Despite the plunge, Microsoft's problems are not necessarily bad news for the rest of the technology sector. Worldwide technology spending remains strong and other big technology companies, including Intel, have reported first-quarter earnings well ahead of analysts' expectations.

"Almost across the board, technology spending appears to be extremely robust and healthy," said Michael Manns, senior portfolio manager at American Express Asset Management, which invests $7 billion.

But U.S. companies are spending less money on desktop computers and more money on high-end servers that they can use for crunching numbers in databases and running business-to-business Internet sites. Sun Microsystems, a maker of servers, benefits from this shift at Microsoft's expense, said Chris Mortenson, a managing director of Deutsche Banc Alex Brown.

"For the last year we've been moving to a more server-centric environment," Mortenson said. "That is taking away from spending on the desktop."

Like other Wall Street analysts, Mortenson said most of Microsoft's slide Monday came because of fears that its growth has slowed — not because of the Justice Department's antitrust case. Mortenson said he did not think a Microsoft breakup would be good for the company's investors, but he noted that the lawsuit will take years to resolve and that no one knows the outcome.

Jeff Applegate, a longtime bull on technology stocks and chief investment strategist at Lehman Brothers, agreed that the antitrust case is less important to Microsoft's future than the shift in technology spending away from personal computers. "I've viewed the legal stuff, the antitrust issue, as more of a sideshow, and to me the real issue is can these guys migrate their business from a PC-centric to an Internet-centric world," Applegate said.

Microsoft's earnings report last week offered cause for concern on that score. The company said that its sales in the three months ended March 31 were $5.66 billion, up 23 percent from their 1999 level. But most analysts were predicting a much stronger increase, to $5.9 billion. Most of the shortfall came from lighter-than-expected sales of the company's Windows operating system software, with sales to business customers especially poor, analysts said. That crimped Microsoft's operating margins, which were down slightly compared to 1999.

While Microsoft's profits rose 23 percent compared to the 1999 quarter, to $2.4 billion, or 43 cents per share, much of that increase came from unexpectedly large gains in Microsoft's investments in other companies. Microsoft's operating profits were actually 2 cents short of analysts' expectations, the first time Microsoft has disappointed Wall Street since March 1989.

In addition, Microsoft told analysts that its revenue and profit growth would stay slow throughout this year and into 2001. While the company regularly talks down its future prospects, analysts said that this guidance was more conservative than usual, especially since it came after a soft quarter.

Still, investors would be wise to keep Microsoft's troubles in perspective. Most companies would be thrilled to have operating margins near 50 percent and a cash and investment hoard that tops $40 billion. And Applegate noted that since the rally in technology began in early 1993, there have been seven previous periods when technology stocks significantly underperformed the market, he said. Each time, they have eventually regained their lead.

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"It's not like this has never happened," Applegate said. "It's typically a poster child which stumbles."

But Microsoft's success has made it more than just another technology company. Its gains have coincided with a decade-long economic renaissance in the United States, and an enormous bull market in technology stocks. Microsoft's growth taught many investors that technology could be enormously profitable. Then the even speedier ascent of Cisco Systems, the leading manufacturer of networking equipment, turned advocates of GARP, or growth at a reasonable price, into fans of GAAP — growth at any price.

Now Microsoft's earnings shortfall has thrown the downside of paying high prices for growth companies into high relief. It offers proof, as if any were needed, that no company can compound its earnings to infinity and that even the best-managed business sometimes falls victim to forces beyond its control.

"I don't have much sympathy for people who pay 100, 110 times earnings for companies like Cisco and Sun Microsystems," said Scott Black, president of Boston-based Delphi Management and a longtime value investor. "These are very fine companies. But trees don't grow to the sky."

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