Dueling Fools A Microsoft Duel
Bear Rebuttal

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Dueling Fools
By Rick Aristotle Munarriz (TMF Edible)
October 17, 2001

"The only real threat to Microsoft today is its continuing antitrust headache."

-- Paul Larson, circa ten minutes ago

If an antitrust case that is angling to rattle Microsoft after its bully-mongering ways is a headache, I'd hate to see when Mr. Softy develops a migraine. You see, Paul is right in the position of the malady only he's glossing over the severity of the head wound.

This is not your 1990s Microsoft. The top line, but not the bottom line, was able to set records every year because the personal computer industry was growing every year. It won't happen in calendar 2001. This is just the start of the breakdown.

Paul loves Microsoft's margins but that's already been priced into Microsoft's stock. That's scary because for earnings to outpace the piddling revenue growth, a company must expand margins and Microsoft has little room for that. For a company keeping 29 cents on every dollar it is much easier to lose a penny than to win one.

This isn't a possibility. It's a reality. In fiscal 1999, the company reported operating margins of 50.7%. A year later it dropped to 47.9%. It fell further in 2001, to 46.3%. Don't expect an untimely upgrade and a $299 paperweight to help matters much again this year.

This is Microsoft, the geniuses who banked on WebTV and the company that lost money in interest and investment income last year despite tens of billions in the bank. Bad moves, Paul, you have to agree! The antitrust issue isn't pretty either. Then again, if you play Monopoly, you're going to land on the Luxury Tax square from time to time.

Investors will always quibble over what the next Microsoft will be. Clearly, it won't be the last Microsoft.

So, yes, you could have bought Microsoft at this price in 1998. But obviously it was overpriced at the time given its stock-stagnant ways and now you see that it was a much better oiled machine in a much kinder business climate back then, too.

Some headache, right? Take two aspirins and short me in the morning sounds like the only cure.  

Rick Aristotle Munarriz has both Microsoft and Apple fueled computers at his home. This Duel was written using Microsoft Word, but, hey, let's not hold that against him. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.

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