Too Bad, Microsoft

Is it too late to insert another clip into Microsoft's (Nasdaq: MSFT  ) "I'm a PC" ads? Right after the "I'm a PC and I don't like tweed" segment, I'd like to wedge a clip of Microsoft shareholders saying "I'm a PC and I don't like greed."

Yes, the days of fat feasts at Mr. Softy are over. Last night's fiscal first-quarter results for the world's biggest software company confirm it. Revenue inched up 9% during the period, but operating income and earnings moved just 3% and 2% forward, respectively.

The upside is that investors were actually expecting less than the $0.48-per-share profit that Microsoft scored on $15.1 billion in revenue.

Given Microsoft's many moving parts, it's safe to say that it was a mixed bag.

  • Its Vista-propelled client revenue grew by just 2% and suffered a dip in operating profits.
  • The company's Xbox-fueled entertainment revenue actually had a top-line dip, but made it up with a gain in operating income.
  • Top-line growth is stellar at the company's online business, but unlike Google (Nasdaq: GOOG  ) and even Yahoo! (Nasdaq: YHOO  ) , it can't turn a profit there.

In fact, the only two segments to show gains in both revenue and operating income were its business and server units. You have to tip your hat to Microsoft for moving more copies of Office and its server-serving wares.

It's also not shying away from the cloud computing revolution that is eating into PC-hosted solutions. The company rolled out Microsoft Dynamics CRM Online during the quarter, letting the world know that it's not going to let companies like salesforce.com (NYSE: CRM  ) and NetSuite (NYSE: N  ) have all of the fun.

For all of fiscal 2009, Microsoft sees a profit of $2.00 to $2.10 a share, on $64.9 billion to $66.4 billion in revenue. Even at the high end, the outlook falls short of the $2.11 a share on $66.5 billion in revenue that Mr. Market was expecting out of Mr. Softy.

It's not much in terms of growth, but at least it's inching in the right direction. Even with challenges somewhat outside of its control -- like Google launching a Web browser, Apple (Nasdaq: AAPL  ) gaining market share, and the netbook craze that is taking to cheaper Linux-powered portables -- Microsoft is growing, for now.

The silver lining for potential investors is that Microsoft's share price has fallen much harder than its fundamentals. Did you ever think you would be buying the world's top software company for just 9 to 10 times forward earnings? As long as even the baby steps keep coming, shares of Microsoft may prove to be too compelling a value to pass up, even among the growing pool of cynics.   

Other ways to spend time with Microsoft:

Microsoft is a Motley Fool Inside Value selection. Google is a Motley Fool Rule Breakers pick. Apple is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletter services free for 30 days.

Longtime Fool contributor Rick Munarriz has resisted the Vista plunge, so far. Hdoes not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


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  • Report this Comment On October 31, 2008, at 1:01 PM, Ironbob wrote:

    This article concerns me with what it doesn't say rather than what it does say. It tells us as little as possible while bashing down Microsoft and spent little time on their strengths. Vista sales may be down but that does not tell the entire story where MS is concerned. The fact is, XP is still very much in the running as it is now an option when purchasing an OEM machine. Might want to think about that.

    One only need walk into any video game store to see what the overwhelming number of games are supporting. It sure isn't PS or Wii. Look for a nice uptick on the game side with release of Fallout 3 which is flying off the shelves at an alarming rate.

    The solid truth is, cloud computing is here to say and is the wave for the near future. I work for a huge company and cloud computing is essential. Microsoft is forging ahead with Azure.

    On the public relations side, the "I'm a PC and this is my uniform" commercials are advertising genius standing, Apple on its head and spanking them for using a tired formulaic approach that went DOA in the 1990s. Sorry but using an Apple doesn't make you cool regardless of what Steve Jobs tells you and no one cares about being cool, they just want to get their work done.

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