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Thursday, July 20, 2006

Microsoft Up on a Buyback

Micrsoft dodged the hangman. MSFT posted $0.31 EPS before the $0.03 items, compared to $0.30 estimates; Revenues were $11.8 billion versus $11.65 billion. Microsoft shares fell $0.55 or 2.4 percent to close at $22.85 Thursday, but shares are trading up 5.8% at $24.18 in after-hours trading. The buyback is the main culprit for the positive reaction. Microsoft said it would carry out a $20 Billion tender offer, scheduled to be completed on August 17, and its board authorized an ongoing program to buy back up to a further $20 Billion in common stock.

It is a strange day that twice in the last 3 years Microsoft has determined that returning large sums of cash to holders is the best thing to do. This confirms the obvious, and that is that MSFT is not a growth company. It is saying you can find better uses for your cash than they can. As my friend at the Chicago Fed said long ago, "They aren't a growth stock; they're a utility."

Jon C. Ogg
July 20, 2006

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