Last night's earnings report from Microsoft
That wasn't the case this time.
Microsoft's move to replace employee stock option grants with actual shares of restricted stock was applauded in Fooldom earlier this month, but it won't come cheap. The company is looking for the tab to run close to $4 billion this new fiscal year. That's steep even when one considers that it earned nearly $10 billion in fiscal 2003.
Operating margins fell this past year, too, as its 13% top-line growth outpaced its 11% spurt in operating profits. While this has happened because the company is successfully growing in lower margin areas like its Xbox video game business and MSN Internet, it just goes to prove that not all diversification, even if successful, is for the better.
Microsoft is still losing money on every Xbox console it sells. It's losing even more after May's $20 price cut. It was supposed to make up the difference -- and then some -- as diehard gamers would load up on software, but that hasn't happened. The average Xbox owner has picked up just five games. While developers aren't abandoning the system the way they have Nintendo's struggling GameCube, for a company used to being the top dog it will be years before Microsoft's Xbox even approaches the market dominance of Sony's
Sure, the company's got $49 billion in poker chip liquidity; it can sit and play in the high-stakes table for as long as it wants. Patience pays as Nintendo looks like it's about ready to fold soon, too. But Microsoft investors have been spoiled by decades of fat margins. How long they would be willing to stand by the company as it plays the game remains to be seen.
Should Microsoft ditch the Xbox? Is a penny missed really a penny unearned? What will the company do with nearly $50 billion sitting in cash? All this and more -- in the Microsoft discussion board . Only on Fool.com.