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Thursday, October 26, 2006

Microsoft Earnings Shouldn't Matter, It's the Forward Projections & Body Language

I had looked at all the different metrics and was thinking about how messy this last quarter being reported today and how messy the results for next quarter may look. In fact, this last quarter doesn't even matter.

It doesn't even matter what the revenues differential looks today like because of the calendar fourth quarter (Q2 for the company) from the $1.5 Billion in revenues that will have to officially be pushed out to the quarter that Vista officially becomes available. You cannot place too much faith in any "consensus" projections for today or next quarter. The street is looking for $0.31 EPS and Revenues of $10.75 Billion, but you can make the exact same argument as to why these could be blown-out or why they could be way off. Today is noise. It doesn't matter if MSFT are up 10% or down 10%, at least not as far as the press release for this quarter is concerned. It is going to boil down entirely to what the company shows in its body language and whether or not they expect to be a monster in 2007.

The vouchers for an Operating System upgrade were set to begin today, and after visiting BestBuy.com's VISTA SITE it shows how you will get the free upgrade when it becomes available.

Most of the true business developmental changes are not yet known as far as what to expect in sales and in units.

Microsoft's Zune is launching on November 14 for $249.00, and that is their response to Apple's iPod. We should get to hear what the initial store demand translates to in units, but we still have to take a lot of this on faith.

Microsoft won't have any Xbox 360 competition formally until November when the Sony PS3 and the Nintendo Wii gaming consoles launch.

There is also the online efforts that the company needs to re-grasp. The new Internet Explorer launch is said to be the first unofficial-official prelude to a Vista operating system world.

Microsoft has been under pressure to use its cash, and in the last quarter it returned $3.8 Billion in August via a self tender for shares. It still has more cash on the books than it does for its entire buyback plan. We probably won't see any note on it, but it would be nice to see if the company ever plans to "cash in" on its past investments in all of the outside public companies stock that it holds.

Since MSFT will not be able to count their operating system sales as formal sales until the Windows Vista launch date, all that will really be the focus is Units implied from the vouchers in the next quarter. Windows Vista for business is launching this year and Windows Vista for retail and small business will not be ready until the end of January 2007. Now if for some reason there is much of a delay (which is not expected) then look out, but the company has taken every step to debunk that notion.

All that matters today as far as we are concerned is the future and the dominance. If they give great confidence and are highly positive then it wins. If they are mousey and apologetic or act unsure then they will get hit. That's why I don't care what the earnings and revenues will show for last quarter and partially for new quarter we are already in.

Jon C. Ogg
October 26, 2006
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