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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: chainik who wrote (53722)	4/19/2002 3:13:32 PM
From: orkrious	Respond to of 99280

I forget who was talking this am about MSFT turning this mkt around (Maybe NV?), but here is a well-written piece on the subject from RealMoneyPro. Jay Somaney Sorting through the Maze 4/19/02 12:24 PM EDT I have spent the last couple of hours poring through Softee's earnings report from last night and also going over sell-side reports from this a.m. What really stood out is the fact that almost every analyst is trying to put a positive spin in what definite (in my opinion) was a miss yesterday. Most analysts had forecast $7.4 billion in revenues; MSFT came in at $7.25 billion. On a division-by-division basis, MSFT beat estimates in the desktop platform (by appx. $100 million) and desktop applications segment (by appx. $70 million). The company missed revenue estimates in the Enterprise unit (by $100 million or so) and in the Consumer (by $150 million). Looking closer, desktop platform revenue grew 11% y-o-y while desktop applications grew 1% y-o-y but was down from the December quarter. Enterprise server segment grew a mere 2% y-o-y, but declined from the previous quarter. XBox weakness was the culprit for the weakness in the consumer segment. On an EPS basis (March quarter), consensus was $0.51 and MSFT reported $0.49. Most analysts had not factored in a negative $0.14/share drop due to investment write-downs, but on the other hand had also built in only $0.07-$0.08/share in positive contribution from the sale of Expedia. MSFT recorded a better-than-expected gain on the Expedia sale of $0.15/share. Doing the math, MSFT would have actually missed reported earnings by a far greater amount, if not for the better-than-expected investment gains from the EXPE unit. On an operating basis, however, the company did beat the consensus number of $0.42 -- as pointed out in a post by my colleague, Mr. Kass -- which accounts for the rise in the stock this a.m. Furthermore, analysts are tom-tomming that Mr. Softee now says that PC sales will be lower for both Q4:02 (June) and for full year 2002 as well, but not as low as originally expected. Glossed over is the fact Softee has lowered revenues and earnings estimates for both FQ4 and full year 2003. The company will still grow revenue in 2003 by approximately 12%-14%, but will see stagnant (at best) to slightly negative earnings growth in the same period. I applaud MSFT for taking the conservative approach here. That still does not change the fact that MSFT has no better clarity than any other software company about the IT spending environment. So, when an analyst says MSFT's numbers are conservative and could lead to a nice upside if the IT spending recovers faster than expected, take that with a pinch of salt. That would be true for every IT spending-dependent company in the world. The main question if there is no earnings growth built in for MSFT, why pay 30x 2003 consensus EPS of $1.90/share? At least, until we see a clear increase in IT spending.