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By rhill0123
December 28, 2001

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I've been reading this board for about 2 weeks. I've read posts on detailed security issues, OS comparisons, and how to configure and use Windows XP. I sure would like for people to focus on *investment*. Not anti-Microsoft idiocy.

I'll give it my best shot to start things off. Here's why I bought MSFT several weeks ago:

1. Its relative price strength is strong having remained fairly consistently priced through a technology meltdown.

2. MSFT's competitors are weaker today than they ever have been. They are focused on survival rather than taking on MSFT.

3. MSFT's balance sheet is strong.

4. I believe MSFT to be an anti-competitive, illegal monopoly, that harms consumers --- yet the US government it totally out of its league with MSFT. It is offering what amounts to a slap on the wrist that will not impact MSFT's operations in the slightest. For shareholders, this means -- more profits for us.

5. In the unlikely event that the company does get broken up, one could argue that the individual companies that result would be stronger than the original (I'm not sure that I agree...)

6. The XBox is hot. Kids love it, and I've played with it a bit. The laugh was flawless. MSFT has found a new channel for its software expertise (writing console games) and even a new product line. This is exactly what they need to do to continue to grow the business.

7. The best PDA in the world (IMHO) is now the Compaq iPAQ. I have a palm V, and a palm III. I'm constantly looking at the new offerings by Palm and Handspring as well as the PocketPC world. MSFT's offering competes strongly with Palm's software (at least as good, I would say). The hardware in the PocketPC world is better. I believe that PocketPC will soon run on mobile phone integrated PDAs (like the new GSM handspring), which will dominate PDA and mobile phone sales toward the back half of the next 10 years.

8. Contrary to what people said here, Windows XP is the best Microsoft OS to date. It is vastly superior to Win 95/98/Me as well as NT4. It is better than Win2000, albeit only slightly so. This is going to generate a lot of revenue over the next 2 years.

9. Windows XP came with a lot of goodies that annoy me as a user/MS-hater, but I love as a MSFT investor. Here is the laundry list:

  • MSN seems highly integrated. It's your default home page in IE. When setting up dial-up connections, MSN is a prominent choice in-and-of itself. This should put us in a competitive position w.r.t. AOL soon. There is this thing called the MSN browser too, but I haven't played with that.
  • Windows Messenger is completely integrated. This should kill off AOL's Instant Messenger pretty quickly.
  • Media player is pretty good, and completely integrated. This should kill off Real's RealPlayer pretty quickly.
  • Activation could be big... many users right now are pirating software (some don't even know it). Activation will force these people for fork over another $100 to MSFT to do this. Add Activation to every MSFT product, I say! (It's a bit annoying as a user, but not that bad. I've torn my machine apart a few times and never had to re-activate.)

In general, I see XP as a total anti-competitive win for the company. They are parlaying their monopolistic advantage to the maximal possible extent. I see a lot of Netscape's coming!

10. I'm fairly confident the traditional cash cows (Office, primarily) will continue to be the best products in their class for the time being.

What bothers me about the stock:

1. Their valuation is lofty. This is because they are one of the most successful companies on earth and a very safe investment. However, it's enough to worry me.

2. Their total lack of regard for security is becoming an issue. While I won't get into technical details, I can say that my IT friends are getting a bit miffed about all the security vulnerabilities. Why can't they just hire a whole bunch of good hackers and put them in the QA dept?

3. I'm worried that they are getting cocky about dealing with the competition. They can't keep driving people out of business by direct bundling. I would prefer a bit more subtlety. Sooner or later, even the government will get their act together.

4. The whole ".NET" thing and a services business model concerns me. On the one hand, services are the fastest growing MSFT business segment. However, I have one question � don't customers depreciate software purchases? Can they depreciate services? If you believe that the total amount of money is fixed (or relatively so --- I don't think services will generate, say, new MS-Word customers), then the money available for services is the fixed money minus the depreciation advantage? How will this work? Also, what about psychology? Fixed-cost services and/or purchases are very popular because don't want to think about spending money on a per-use basis. Has the marketing team at MSFT fully explored these issues? Who is leading ".NET" internally, and what is their expertise?

Any thoughts?


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