Just a few tidbits from a recent fortune article just in case you have not read it yet.
But that's good enough to make MSFT a buy in our opinion. Few, if
any, companies have so clear a path to double-digit profit growth
well into the next century. Even if Microsoft's income growth rate
isn't what it used to be, says Stanek, "profits are still incredibly
secure. It's very hard for me to imagine this company's earnings
coming up short over the next year or two."
What makes Microsoft's growth picture so clear? First, "they
dominate every category they're in," says Stanek. Plus, licensing fees
on such ubiquitous Microsoft products as the Windows 95
operating system and the Microsoft Office suite of business
applications have smoothed out some of the peaks and valleys
usually associated with the software industry. In a market where
techs implode with terrifying regularity, investors will continue to pay
a premium for this kind of dependability.
What's more, Microsoft is on the verge of delivering a series of new
blockbusters. The fireworks are scheduled to begin in late spring
with the release of the Windows 98 operating system for desktop
computers, followed late this year or early next year by shipment of
Windows NT 5.0 for corporate networks. The buildup continues
into 1999 with the release of updated versions of Microsoft Office
and the SQL Server database. "Microsoft stock tends to move up
in front of the release of major new software programs," says
analyst Michael Kwatinetz of Deutsche Morgan Grenfell. "And NT
5.0 is the most important release since Windows 3.0 in 1990. It's
huge." Basically, NT creates a single, easy-to-use standard for
enterprise computing--that is, systems based on big mainframes,
workstations, and servers rather than individual PCs. Corporations
relying on these high-capacity computers no longer want to cope
with a babel of incompatible operating systems.
Previous versions of Windows NT have already devoured 50% of
the $12 billion workstation market, and Kwatinetz thinks the new
version could help the company grab most of that remaining 50%.
But the truly stunning potential for version 5.0 resides in the $60
billion to $80 billion market for heavy-duty enterprise software, in
which Microsoft controls only about 5%. Gaining a 20% share
could double Microsoft's $14 billion revenue base. "Their share of
this market is growing rapidly," Kwatinetz adds. "Even if the rest of
Microsoft's business slowed considerably, this market alone could
enable it to grow 20% or more annually for at least five years."
In the meantime, Windows 95, which some analysts are already
calling a dinosaur, still grows at a comfortable annual rate of 25%.
Even Microsoft's lesser-known products continue to generate huge
returns. Sales of Microsoft Exchange, essentially a sophisticated
E-mail system for big networks, jumped by 300% in 1997. |
