that the cost to address the issues is not material.  Nevertheless, Microsoft is creating contingency plans for certain internal systems.

Microsoft is addressing the effect this issue will have on its third-party supply chain and has undertaken steps to formulate a system of working with key third parties to understand their ability to continue providing services and products through the change to 2000.  Microsoft is working directly with its key vendors, distributors, and resellers to avoid material business interruptions in 2000.  Contingency plans are being developed where practicable for these key third parties.

Resolving Year 2000 issues is a worldwide phenomenon that is absorbing a substantial portion of IT budgets and attention.  Certain industry analysts believe the Year 2000 issue will accelerate the trend toward distributed PC-based systems from mainframe systems, while others believe a majority of IT resources will be devoted to fixing older mainframe software in lieu of large-scale transitions to systems based on software such as that developed by Microsoft.  The impact of the Year 2000 on future Microsoft revenue is difficult to discern, but it is a risk to be considered in evaluating the future growth of the Company.



Future growth rate

The revenue growth rate in 2000 may not approach the level attained in prior years.  As discussed previously, operating expenses are expected to increase in 2000.  Because of the fixed nature of a significant portion of such expenses, coupled with the possibility of slower revenue growth, operating margins in 2000 may decrease from those in 1999.