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

To: taxman who wrote (33764)	11/11/1999 9:40:00 AM
From: johnd	Respond to of 74651

Stock is up 2 on heavy volume.

To: taxman who wrote (33764)	11/11/1999 5:54:00 PM
From: Art Bechhoefer	Read Replies (1) \| Respond to of 74651

I look less at stock price and more at return on investment. In the past few years, Microsoft has been trying to diversify into several different areas. They got involved in a satellite communication project that would compete with Globalstar, but would be more expensive and complex. It's probably going nowhere, now that Globalstar is the one that looks like it will succeed (Iridium already went broke). They made an investment in web TV as a way of extending Windows CE. It might work, but it has lots of competition, and therefore, the profit margins are likely to be lower than what MSFT gets from its regular Windows sales. They created a joint venture with QUALCOMM, just recently demonstrated, for wireless data communications. That one might work quite successfully. What I see in general, however, is lower profit margins and much longer lead time before many of these investments will become profitable. Translating those developments into stock price, it appears to me that earnings growth will decline somewhat for the next few years. That in turn will lead to a lower price-earnings ratio, which in turn will put pressure on the stock price. It may not go down too much, but it may go up less percentagewise than it has in the last few years. Given that the stock pays no dividend, portfolio managers will become somewhat skeptical of holding the shares under these conditions. On the other hand, if the company decided to use it huge cash flow to buy up more shares, then the earnings per share growth would continue to look very respectable. These things are not easy to predict but are merely intended to be reasonable alternative scenarios that investors might expect.