Don't Be Confused About Microsoft: The News Is Bad
So now the world knows Microsoft's (MSFT) quarterly results. And they were unimpressive for the greatest growth stock in history run by the richest man in the world. Revenues were flat. Operating earnings were down. Earnings per share met analysts' already lowered expectations.
Microsoft's sluggish numbers left investors decidedly downcast. After a brief pop in after market trading Tuesday evening, the stock slumped badly Wednesday and closed down 5 3/8, or 6.9%, at 73 1/8. Analysts at Prudential Securities and SG Cowen downgraded the stock from a buy to a hold. Other analysts held their buy recommendations but reduced their published estimates for growth in revenues, operating income and earnings per share (excluding investment gains).
Let's sift through the dross.
Revenues for the quarter were $5.8 billion, 1% higher than a year ago and 3% higher than last quarter. That is the kind of growth rate one would expect from a
|Don't Worry, Bill's Still Rich
Microsoft vs. the Nasdaq Composite Index, Wednesday
One, the core PC-based business is vulnerable. (Windows products account for 40% of revenues, which is just about what they were in 1998.) Its new Windows 2000 product line has yet to catch on. There is no way to get around the fact that Microsoft's profits key off PC growth, which is unlikely to recover to rates reached last century -- i.e., in the 1990s. Whatever the future holds for Microsoft, we will have to wait until late in the year to find out whether Microsoft's core corporate PC business has picked up. (Companies tend not to buy PCs so much in the summer.)
Two, the company is still struggling to segue from the old PC-based computing world to an Internet-based one. The company finally presented the general outline of an Internet strategy in June, but that is about it right now. Whether it can dominate the markets for Internet-based software is truly unclear. Those neighborhoods are already claimed by formidable competitors like
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