| posted Monday, December 25,
Microsoft bashers may give their glee a break,
because price is right
They say that when it comes to money, you shouldn't
wear your heart on your sleeve -- that's in spending,
saving, betting or investing. And yet, every time I
check the stock listings, the price of Microsoft Corp.
keeps jumping off the page, chiding me to at least take
It appears I'm not alone.
With its price down more than 60 percent from the
year's high, Microsoft is getting a microscopic look
from lots of stock analysts and investors. And with a
Bush administration headed to the White House, concerns
about the landmark federal antitrust ruling against the
software giant might be subsiding somewhat.
Just a year ago, Microsoft was riding high at nearly
$120 a share and convinced it ruled the world. But the
stock this past week dipped near $40 a share -- its
Friday closing was up $3, to $46.44 -- investors are
looking at the likelihood for more of an upside than
downside for shares of Microsoft. Yet the gusto seems to
have been lost somewhat in the headiness of the stock.
Take Microsoft's shocking news on Dec. 14. The
software maker that day warned that its fourth-quarter
profits would fall short of estimates, sending investors
running for the exits and pushing the stock down more
than 11 percent. And as one of the 30 Dow Jones
industrial average stocks, Microsoft's fall sent the Dow
down 240 points, or 2.3 percent, for the day.
Even for a stock that has a history of lowballing
estimates and then coming out and doing better than
expectations, the warning by Microsoft was notable. But
is the mid-$40s for the darling of this high-tech stock
world the bottom?
"It should be pretty close to the floor, but that's a
pretty tough call to make," said P. Raghavendra Rau, a
finance professor at Purdue University's Krannert School
of Management. "The stock market sometimes takes its
time in sorting all that out. There may be some
For a long time, Microsoft had been able to manage
expectations properly and dominate in a world that
survived solely because of its link to the mighty
software giant. But with a personal computer market in
the throes of a correction, not even Microsoft is
In its alert, Microsoft said it now expects revenue
to come in at $6.4 billion to $6.5 billion for its
fiscal second quarter, with earnings of 46 cents or 47
cents per share. Total 2001 numbers also were adjusted,
with revenue projected at $25.2 billion to $25.4
billion, and earnings of $1.80-$1.82 a share. Analysts
were expecting earnings of $1.91 a share for fiscal
According to Dan Briody, of the high-tech stock
newsletter Redherring.com, Microsoft's rare
warning, coupled with the success of competitor Oracle
Corp., underscores a much more important realization
about Microsoft -- that it's still a PC-oriented
"No matter how much Microsoft wants you to think it's
about the back office, its heart and soul -- and the
majority of its revenues -- are still tied up in the
foundering PC market," Briody says.
Nearly 71 percent of Microsoft's revenues come from
its PC business, including operating systems. Of that,
between 35 percent and 40 percent of its revenue come
from Microsoft Office sales. A potential help: Microsoft
plans to roll out .Net, its Internet-based software
platform, in 2001.
"The company is maturing," said Aaron Scott, a stock
analyst at Tucker Anthony Capital Markets. "The next
wave of growth will come from the server side, with
Windows 2000, but we need to see how they are doing with
that in the longer term. And another big question is
whether Microsoft .Net will surface to be a killer app."
All is not bad. The PC industry is still expected to
ship close to 100 million units in 2001, and with
margins as high as 90 percent on some of its desktop
software and operating systems businesses, Microsoft
will continue to generate huge profits for years to
But observers like Rau and Briody think the market
has embraced the new Microsoft. And though the market is
content with Microsoft's prospects, the investor
euphoria has started to reach more realistic
"It's always important to note that it's not like the
business is shrinking," says industry analyst Dwight
Davis with Summit Strategies in Kirkland, Wash. "It's
just that the growth rates aren't as high as they had
But at $46.44 a share? Even the Microsoft haters may
be forced to sell their soul this holiday season and
make a wager on the software giant. After all, how much
cheaper can it get?
Fiorini is the local editor. He can be reached by
calling (765) 420-523.