<THE CASH-KING PORTFOLIO>
Austin, TX (Nov. 20, 1998) -- I'd like to sum up the week, correct some mistakes, and then finish off by addressing Microsoft's (Nasdaq: MSFT) legal problems today.
In Tuesday's article I stated my belief that Microsoft produces inferior products using ideas copied from others. Its admittedly nice graphical user interface (GUI) is a coat of paint over dry rot: the underlying technology is stale and pathetic. On Wednesday I stated that nobody has any real incentive to cooperate with a company that habitually puts partners out of business, and that the company has grown bigger than its much admired public relations department can handle.
Thursday I talked about the free market striving to find alternatives to Microsoft, such as Java and the Open Source Software movement. Under Linux, the risk of a software developer becoming "too successful" and attracting Microsoft's attention is not present. Resellers are happy with it because every dollar they can bill is pure profit, and its penetration into the corporate space increases on a daily basis. And yesterday, Microsoft brought Linux up in court as an example of competition, a move reminiscent of NBC or CBS looking around for competition and having to settle for PBS. (Click here for an earlier column about Linux).
To everyone who wrote in to correct me: you're right, the product Microsoft is trying (so far unsuccessfully) to attack Oracle (Nasdaq: ORCL) with is the SQL Server, not Access. Also, a couple of links got mixed up yesterday: the Halloween document is here, and The Cathedral and the Bazaar is here.
Several people seem to think I'm advocating selling Microsoft out of our portfolio. In reality, I'm simply arguing against buying more of it with our next cash infusion, and pointing out that the deification of Mr. Softy that we see in this column is by no means the only side to the story. Placing MSFT above Coca-Cola as the ultimate example of what it means to be a Cash-King just doesn't sit well with me. Besides, there is risk in any investment (with the possible exception of KO :) and Fools should make up their own mind. Remember, the other three portfolio managers have historically disagreed with me about Microsoft, and I doubt I've swung them over to the dark side this easily. Anyway, on with the story of Microsoft's legal battles...
This week Sun Microsystems (Nasdaq: SUNW) won the second round in its lawsuit against Microsoft. Java is a technology invented by Sun that allows programs using it to run without modification on many different platforms, including Windows, Macintosh, Linux, OS/2, Sun's own Solaris, and even mainframes. Microsoft licensed the technology from Sun and then released a set of development tools that produced Java programs that could only be run using Microsoft's Java driver. Sun sued, saying the intentional incompatibility violated Microsoft's license to use Java in the first place. Several months ago Sun won the right to stop Microsoft from using the Java trademark and logo. Now a judge has given Microsoft 90 days to either make their implementation of Java compatible with Sun's original version, or else stop selling Windows 98.
AT&T's (NYSE: T) lawsuit against Microsoft for access to the Windows 5.0 (now Windows 2000) source code was settled out of court. Caldera has recently gained the right to examine Microsoft's Windows 95 source code as evidence in its lawsuit against Microsoft. You can read about Bristol Technology's ongoing lawsuit against Microsoft where I've linked here. As far as influential individuals go, consumer advocate Ralph Nader has founded the "Consumer Project on Technology" to vent his own spleen against Microsoft. And Senate Judiciary Committee Chairman Orrin Hatch (from Novell's home state of Utah) is ready to launch his own investigation of hearings about Microsoft at the drop of a hat (and he has a hat standing by).
But the trial that's been giving Microsoft the hardest time has been its federal antitrust trial against the Department of Justice, and this public relations bonanza for Microsoft is expected to continue well into next year. For you information junkies out there (and why else are you reading a daily column about a long-term buy and hold investment strategy), here's a few sites offering archives of (their own or others) trial coverage. There's hours of great reading here, especially in some of the editorials and sidebars:
The DOJ's list of twelve witnesses includes executives from Intel, IBM, America Online, Apple, Netscape, Sun Microsystems, Intuit (makers of Quicken), two economists, and professors from Princeton and the University of Pennsylvania. Microsoft's witnesses consist of nine Microsoft executives, one of George Bush's economic advisors, and two executives from companies that smile when Microsoft tells them to. Each side can call two more witnesses, and Microsoft may call Bill Gates himself. But they've been reluctant to do so, probably because he lost his temper on the witness stand in the stacker trial a few years back -- a court case which ended in a $120 million judgement against Microsoft. The fact that Bill Gates' videotaped testimony has already made the entire court (including the judge) burst out laughing on at least one occasion might also have something to do with it. (Hint: Gates wasn't telling a joke.)
But the most important thing to come out of this trial is not some undefined government action to fix things, but a large amount of information that Microsoft has tried hard to keep out of the press. The released internal documents alone make it worth watching for those of us who work in the industry.
As Microsoft software becomes an increasing part of the cost of a new computer, we should all realize that Microsoft's famous marketing department is targeted at its shareholders just as intensely as anyone else. This company is enormously profitable, but it has enormous and diverse challenges to overcome if it wants to continue to be the end-all and be-all of the computer industry. Microsoft is a company that must grow to survive, and it's running out of elbow room. Its billions in cash indicate more than profitability: it has nowhere to invest the money in itself. Microsoft will either burst through the roof or crush itself to death, and nobody's sure which.
Have a happy weekend and drop by the Cash-King strategy or companies message boards if you'd like to discuss anything I've talked about this week. (You may not believe this, but I used less than a quarter of my research material, there's plenty left to talk about!)
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Breakers, Rule Makers in advance.
Day Month Year History C-K +1.19% 8.48% 20.58% 20.58% S&P: +0.95% 5.90% 15.66% 15.66% NASDAQ: +0.44% 8.85% 15.72% 15.72% Cash-King Stocks Rec'd # Security In At Now Change 2/3/98 24 Microsoft 78.27 113.63 45.17% 2/3/98 22 Pfizer 82.30 112.00 36.09% 5/1/98 37 Gap Inc. 51.09 68.00 33.10% 2/13/98 22 Intel 84.67 112.06 32.35% 6/23/98 34 Cisco Syst 58.41 74.63 27.76% 8/21/98 22 Schering-P 95.99 104.19 8.54% 2/27/98 27 Coca-Cola 69.11 72.81 5.36% 2/6/98 56 T. Rowe Pr 33.67 35.25 4.68% 5/26/98 18 AmExpress 104.07 104.56 0.48% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 63.15 76.69 21.44% 3/12/98 20 Exxon 64.34 72.00 11.91% 3/12/98 17 General Mo 72.41 72.00 -0.56% 3/12/98 15 Chevron 83.34 80.88 -2.96% Cash-King Stocks Rec'd # Security In At Value Change 2/3/98 24 Microsoft 1878.45 2727.00 $848.55 2/3/98 22 Pfizer 1810.58 2464.00 $653.42 5/1/98 37 Gap Inc. 1890.33 2516.00 $625.67 2/13/98 22 Intel 1862.83 2465.38 $602.55 6/23/98 34 Cisco Syst 1985.95 2537.25 $551.30 8/21/98 22 Schering-P 2111.7 2292.13 $180.43 2/27/98 27 Coca-Cola 1865.89 1965.94 $100.05 2/6/98 56 T. Rowe Pr 1885.70 1974.00 $88.30 5/26/98 18 AmExpress 1873.20 1882.13 $8.92 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 1262.95 1533.75 $270.80 3/12/98 20 Exxon 1286.70 1440.00 $153.30 3/12/98 17 General Mo 1230.89 1224.00 -$6.89 3/12/98 15 Chevron 1250.14 1213.13 -$37.02 CASH $120.62 TOTAL $26355.31 *Please note: On 8/4/98 $2,000 cash was added to the
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