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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Jill who wrote (25320)	6/30/1999 7:23:00 PM
From: Ender	Respond to of 74651

A reserve is an estimate of expenses not yet incurred but recorded in order to match Revenues with Expenses(GAAP). A Reserve is maintained on the books in the form of a liability. Taking reserves that are too big implies that estimated expenses have been recorded that are greater than the actual expenses that will be subsequently incurred. In english that means that the Reserve liability on the books is greater than the actual liabilities that will be paid. Or, if the Reserve is too big, the only way to Decrease the Reserve is to Increase Earnings.. Brad

To: Jill who wrote (25320)	6/30/1999 8:01:00 PM
From: Uncle Frank	Read Replies (2) \| Respond to of 74651

>> what does it mean, "taking reserves that are too big?" Jill, to put it in the somewhat visceral venacular of the sales profession, it means they are SANDBAGGING/HIDING PROFIT/PUTTING ORDERS IN THE DRAWER UNTIL THEY NEED THEM. Only an incredible organization like Mr. Softee can do that and still show the fabulous profits they have been reporting. It says they are doing better than we think <vbg>. Frank

To: Jill who wrote (25320)	6/30/1999 8:07:00 PM
From: t2	Read Replies (2) \| Respond to of 74651

Jill, MSFT's Revenues and EPS would have been higher since sometime in 1995 and its PE would have been smaller given its current stock price. MSFT has not being recognizing about (20 to 35%) of certain sales as they believe that the sale accompanies certain obligations to MSFT---example is free internet improvements for Windows 95. They are bringing this amount back into income over the product cycle. However, due to MSFT's growth, the unearned revenue account keeps going up. The result has been skyrocketing unearned revenues account and that is not being reflected in the income statements. They are very conservative in their accounting--had articles written about their accounting policies. Other companies usually want to report as high as possible EPS. Maybe someone else can add to my comments. See this quote from a quarterly earnings release. Unearned Revenue A portion of Microsoft's revenue is earned ratably over the product life cycle or, in the case of subscriptions, over the period of the license agreement. End-users receive certain elements of the Company's platform products over a period of time. These elements include browser and other Internet technologies, telephone support, Internet-based technical support, service releases, and new device drivers. Consequently, Microsoft recognizes the fair value of these elements, currently approximately 20% of Windows 98 and Windows 95 desktop operating systems OEM revenue and approximately 35% of retail version revenue, over the product's life cycle. Approximately 20% of Windows NT Workstation and Windows NT Server revenue is also recognized ratably. Product life cycles are currently estimated at two years. The Company also sells subscriptions to platforms products via maintenance and certain organization license agreements. At March 31, 1999, platform products unearned revenue was $2.06 billion. Likewise, end-users of the Company's desktop applications products receive elements over time, including telephone support, new Internet technologies, and service releases. Fair value of these elements, which is currently approximately 20% of Office 97 applications revenue, is recognized ratably over the estimated 18-month product life cycle. The Company also sells subscriptions to applications and tools products, including maintenance and certain organization license programs. Unearned revenue associated with applications and tools products totaled $2.02 billion at March 31, 1999. Unearned revenue associated with other miscellaneous programs totaled $113 million at March 31, 1999