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Friday, August 11, 2006

Microsoft’s Mini-Rally


Break out the champagne. Microsoft’s shares have staged a small rally from $21.50 on June 14 to $24.50 this week. It may be small comfort to those who got in at $27.00 on April 15, but it is better than the stock going down.

A few investors now believe that Microsoft no longer views itself and invincible, after early setbacks with the Xbox, and faltering results at properties like MSN. The fear that software is moving online has been fueled by Google’s attempts to distribute everything from maps to spreadsheet over the internet, although there is little evidence that it has made them even a dime.

With Bill Gates leaving active management and the company swearing that it will do everything from moving Xbox sales ahead of Playstation to burying the Apple iPod with the new Microsoft Zune multimedia player, Wall St. believes that some of it might stick.

Even though Microsoft’s share of the world’s desktop software business is about 90% and the company has a market cap of $246 billion, it may actually take very little to get the stock back in gear. Expectations of the company have actually been that low as the stock has traded in a narrow range between $23 and $30 since early 2002.

Microsoft’s recent presentation of the Zune, projections for the Xbox, and plans to move its software online have given some hope to investors that the company may go through a minor reinvention and the cries of suffering investors have finally made it to the management offices in Redmond.

Microsoft probably has a couple of quarters to prove that it really has gotten religion. If not, the stock is likely to trade around $25 from here to eternity.

Douglas A. McIntyre can be reached at He does not own securities in the companies that he writes about.

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