InformationWeek: The Business Value of Technology

This time, no single sector dominated for Microsoft; almost every one reported 25% sales increases year over year. However, overall sales were greatly supported by a recovery in Asia/Japan, up 53% over last year. As usual, the company is very good at pushing forward expectations downward.

It's not hard to see why. How do you keep growing a monster like Microsoft by 25% to 30% in sales per year without major acquisitions? Slowing PC demand is a real concern, as is the prospect of a global economic slowdown. However, the execution of this company is second to none in the software environment.

If Microsoft gets much more conservative in its future guidance, it will start to blame global-warming trends for a potential slowdown in its business.

In the latest quarter, revenue rose another 39% year over year to $5.8 billion ($5.2 billion if you factor in all the accounting adjustments made this quarter--a still-healthy gain of 26%). The net result was operating income of $2.1 billion, up 55%.

Gross margins were 88.4%, and operating margins remain an amazing 50.4%. The balance sheet remains stellar, and assets include equity investments in venture-capital companies, publicly traded Internet companies, Nextel, Rogers Communications, and AT&T. Equity investments now total $14.37 billion. Book value is $5.17 per share, which may not mean much for this company.

Despite the recent acceleration of revenue recognition for Windows, forecasts for profits will probably remain the same as expenses will also be accelerated. Revenue for fiscal 2000, ending June 30, 2000, will likely exceed $23 billion.

Yes, Microsoft is valued richly, but if you want to perform in line with the broader equity market indexes, you need this stock.

William Schaff is chief investment officer at Bay Isle Financial Corp. in San Francisco, which manages the InformationWeek 100 Stock Index. You can reach him at bschaff@bayisle.com