Foolish Forecast: Forget Mediocre Microsoft

Microsoft (NASDAQ:MSFT) jumped the gun on its second-quarter results today, releasing the info before the opening bell rather than after the closer. That's not because of any extraordinarily positive news that the company had to break, though. This report is about as exciting as mayonnaise on pre-sliced white bread, served with a glass of room-temperature water.

Sales managed to grow by 2% over last year, landing at $16.6 billion. Despite a nearly $15 billion share repurchase jolt since last year, earnings per share evaporated to $0.47 -- 6% below last year's result. CEO Steve Ballmer gave us the expected platitudes about effects of the economy, managing expenses, and working to "deliver value to customers and shareholders." Yeah, you've heard these things a trillion times before.

While not entirely disastrous under the economic circumstances, the quarter also wasn't inspiring in any way, shape, or form. Not that mediocrity is anything new for Microsoft's stock performance in the recent decade. For example, its Motley Fool CAPS record is uninspiring next to its peers:

Data taken from Motley Fool CAPS and from Capital IQ, a division of Standard & Poor's.

Despite a rock-bottom valuation, which has a direct bearing on the number of CAPS stars a stock gets, Microsoft has been a middling three-star CAPS stock for months on end. But all-star member TSIF works up enough gall to complain that the Redmondians are "engineering themselves into the grave. They can't compete with Linux and VMware (NYSE:VMW), can't control piracy, have their office products under attack by open source, couldn't buy their way into a search engine (lucky for them), and are now getting killed by [Apple's] Mac." Yep, TSIF keeps an "underperform" rating on Microsoft. I don't think that'll change, based on this report.

Sure, Microsoft is a deep-discount value today with a tiny P/E ratio and lots of cash. Trouble is, there are tons of other fire sales going on, and I can't say that Microsoft excites me more than the average fallen blue-chip techie.

There's just not much action going on here. Sure, Windows 7 could and should be a hit, but it's basically a touched-up rehash of Vista with many of the ugly warts removed. I don't see a lot of real innovation there, despite glowing early reviews. The Yahoo! saga was a bad idea coupled with botched execution, leaving Google as the real winner in that mess.

Ballmer and his gang need to kill or spin out money-losing hobby operations like the online services division, so they can refocus on their true core competencies in operating systems and enterprise-class software -- possibly through some acquisitions that actually make sense. But there are too many huge egos and long-suffering projects involved, so that won't happen. Microsoft may grow from here and the stock should eventually rise. But you can definitely make more money elsewhere.