microsoft conquers oracle, but is upset by linux
per THE BULL MARKET REPORT™ for WEDNESDAY, February 24, 1999
---Todd Shaver <bull-market@erols.com> wrote:
>
> THE BULL MARKET REPORT™ for WEDNESDAY, February 24, 1999
> Volume 14, #16
>
> $$$$$ MICROSOFT TRIAL TO TAKE A BREAK
>
> The antitrust trial, which has dragged on months longer than expected, will
> recess during the entire month of March and part of April. The judge
> announced the new schedule Monday, citing previous commitments in other
> trials that he and the government's lead lawyer, David Boies, must honor.
> The trial will resume no sooner than April 12.
>
> COMMENT: This will take the pressure off of Microsoft for a bit. Don't
> expect the stock price to explode though, just because of the good news.
> Remember, MSFT has doubled since the trial started.
>
> ************************************************************
>
> $$$$$ ACER TO HALT RETAIL PC SALES
>
> Acer Inc., Taiwan's largest computer maker, will stop selling its personal
> computers in U.S. stores and instead will sell them directly over the
> Internet.
>
> COMMENT: Acer has been losing money for the last three years. Good news
> for Compaq; bad for Dell.
>
> $$$$$ CITRIX REVISES NET INCOME UPWARDS
>
> CITRIX SYSTEMS INC said it revised its 1998 results after reevaluating
> write-offs for in-process research and development in light of recent
> guidance released by the SEC. The company decreased its write-off for
> in-process research and development by about $39 million for the 1998 year,
> increasing net income by $25 million for the year. The company's net income
> for the year increased to $61 million, or $1.34 a share, up from $36.3
> million, or $0.79 a share, as reported earlier.
>
> COMMENT: The market loved this one! The stock was up 3 on Tuesday and 2 on
> Wednesday to $86.50.
>
> ************************************************************
>
> DELL COMPUTER DEPARTMENT
>
> From: Gerald Neri Burguera
> To: The Bull Market Report
> Date: Tuesday, February 23, 1999 8:30 AM
> Subject: Direct from DELL
>
> Todd:
> I enjoyed the small piece on DELL in The Bull Market Report, which I get
> every day. Dell's new book is just hitting the bookstores. "Direct from
> Dell" is an account of his beliefs, and how he built Dell Computer from
> scratch.
>
> After reading it, your feel like buying all the Dell stock you can get your
> hands on. It is a must read for everyone who in interested in the new
> networked economy and building companies that thrive on change.
>
> Keep up the good work with The Bull Market Report.
>
> Gerald N. Burguera
> gbur@loc.gov
>
> COMMENT: Thanks for the tip, Gerry. We know how much you like Dell and we
> appreciate your sending this information!
>
> ************************************************************
>
> LINUX VS. IBM DEPARTMENT – A CONTINUING STORY
>
> (This may bore some of you, but for those that own Microsoft and are
> following the Microsoft/Linux story, it may be of interest. WE learned a
> lot from this letter! If you're not interested, hit the “page down” key!)
>
> From: Robson, Robert
> To: The Bull Market Report
> Date: Tuesday, February 23, 1999 10:30 AM
> Subject: Linux vs. Win NT
>
> Todd,
>
> First, let me say that I've been a reader of the Bull-Market for the last
> few months and am profiting from the experience. My thanks on a job well
> done. I just read the question from a reader on the effects of Linux on the
> Windows market. I'd like to toss in my two cents worth.
>
> The Windows market should be divided into two segments: desktops and
> servers. The desktop is what most people use and does a great job of
> displaying their word processor, spread sheet, etc. It does this
> efficiently, gives most people what they want, and is a success. Servers
> are a different story.
>
> A server sits in the back room and performs services for other machines on
> the network. This typically involves heavy computation, whether it be
> serving out files, responding to database requests, or running a web server.
> These machines are installed, configured, and left to do their thing. While
> they have the familiar Windows GUI interface, people only look at it
> occasionally, when something goes wrong. Thus, servers are more concerned
> with computational performance than with the quality of the GUI. Since
> every machine on a network depends on the server, the server must be stable
> and not subject to crashing several times per day.
>
> Traditionally, servers were run by non-Microsoft operating systems on non-PC
> hardware. Only recently has PC hardware become fast enough to be considered
> for use as a server. Older servers were much more expensive than PCs so
> there was a great push to replace them with PCs. But what operating system
> should be used? Windows 3.1/95/98 were quickly ruled out due to their
> instability (when did your machine last crash?). Windows NT was designed to
> fill this niche. It is an entirely new operating system that shares little
> with 3.1/95/98. It is a pre-emptive multitasking, virtual memory operating
> system with protected memory, which is what is required for a server.
>
> Linux is also a pre-emptive multitasking, virtual memory OS with protected
> memory. Both Linux and NT are highly stable. Both have GUI interfaces.
> Linux will not run your favorite word processor. Microsoft wants a hefty
> fee for an NT server license. Linux is free.
>
> Microsoft will remain the undisputed king of the desktop. The battle with
> Linux will be waged over who runs the servers. There are still a lot of
> servers out there run by IBM and Sun. Microsoft is still gaining ground as
> people switch from more expensive hardware. I do not see Linux as taking
> current market share from Microsoft but slowing Microsoft's expansion into
> the server market. Microsoft will not be stopped since many people will
> never trust and use a free operating system.
>
> Linux will not take over the desktop. It will reduce server sales, but that
> is a market Microsoft is still moving into. Thus, the effect on Microsoft
> will be to reduce growth in a new area where they are just developing a
> presence. It will not reduce current sales nor will it slow growth in areas
> other than servers. Thus, instead of making obscene profits from the server
> market, Microsoft will probably only make good profits. Still, there is one
> less area in which Microsoft can experience rapid growth and dominance.
>
> I'm not selling Microsoft yet.
>
> Robert Robson
> RobsonR@aecl.ca
>
>
> Microsoft Musings
> By Joe Arena
> Editor
> The High Tech Arena
> February 24, 1999
>
> As the Nasdaq continues to rally and Microsoft's (MSFT) stock price is held
> hostage to the legal morass in Washington, long term investors would do well
> to take note of the many positive events of late which augur well for the
> future.
>
> First of all, the recent conference call was the most bullish in recent
> memory. We at the High Tech Arena have listened to Microsoft CFO Greg
> Maffei cry wolf at every conference call over the past few years, but this
> time was different. We consider it extremely positive for him to guide
> analysts' earnings estimates upward for the current quarter. Not only did
> he say analysts' estimates for the quarter were too light, but he asserted
> they were short by "at least five cents." It was also very encouraging to
> compare Mr. Maffei's comments about Asia to the statement he made three
> months ago. Specifically, he referred to conditions in Asia as "terrible"
> on the last conference call, while he defined current conditions in the
> region as "tepid." Based on the conference call, most analysts revised
> their fiscal 99 earnings projections upward, with the highest estimate now
> at $2.40 per share. Several months ago, The High Tech Arena had revised its
> 1999 estimate to $2.55 per share, and we are leaving that intact. At the
> time, this number was looked upon by many as unrealistic, but it may very
> well be in the realm of probability for us to increase it by another 5-10
> cents if the current quarter earnings surprise on the upside.
>
> Secondly, two interesting developments recently occurred which should give
> cause for concern to those who are already declaring America Online (AOL)
> the winner in a game which is only in the second inning. The $90 million
> that First USA ponied up to hawk its credit cards on MSN.com is not only an
> unprecedented sum of money, but also lends credence to the renewed marketing
> focus that Microsoft has on its Internet portal site business model. In
> addition, Microsoft's strategy to distribute 45 million Msn.com CD's via
> direct mail in conjunction with a television and print media advertising
> campaign is a good indication of their determination to get it right this
> time. As we have said before, Microsoft is first and foremost a company
> that succeeds due to their marketing and execution, not their technology.
> And those who would argue that America Online's brand equity is an
> insurmountable advantage fail to consider that this is only true in terms of
> the relatively minuscule 3% of the global population that is currently
> online.
>
> Finally, one of our key investments tenets at The High Tech Arena has always
> been never to buy any company that competes with Microsoft. (But please
> don't tell that to Janet Reno.) In a few weeks, that philosophy will once
> again be underscored as Microsoft takes dead aim at Oracle when SQL Server
> 7.0 is introduced at Comdex on November 16. For the uninitiated, SQL Server
> 7.0 is Microsoft's revamped relational database software, which is designed
> to run mission critical applications for departments of big corporations and
> mid-sized companies. Mission critical applications are those such as
> financial, Human Resources, and procurement.
>
> The relational database market was a $3 billion business in 1997, with the
> UNIX segment comprising about two thirds of that, and Windows NT the
> remainder. In the UNIX space, Oracle dominates with a share of 60%,
> according to Dataquest, with Informix and Sybase number two and three with
> shares of 13% and 8% respectively. In the Windows NT market (now being
> called Windows 2000) Oracle still lead with a 42% share, with Microsoft
> second at around 39%.
>
> Why will Microsoft hurt Oracle in this business? The primary objections to
> SQL Server in the past have been related to scalability and reliability.
> Scalability relates to the number of users that can use the system
> simultaneously and in regard to scalability, Microsoft's product has proven
> to perform well with up to 2,300 concurrent users. This dramatically closes
> the disparity to Oracle's product, and is significant because there are few
> situations that require that many users of a database at one time. This
> makes Microsoft an even more viable competitor in smaller companies.
>
> Price is another tactic that Microsoft has always used so effectively in the
> past, and will be used to attack Oracle's market share. In the past, there
> have been instances where Microsoft has priced their competing product at
> 10% of the price being charged by Oracle. Expect that Microsoft will
> continue to use price as a major part of its strategy to buy market share.
>
> Despite the many positive things that are happening at Microsoft, many
> choose to focus on the rhetoric being spewed out by the DOJ. The bottom
> line is that this case will be decided by the Supreme Court, and a decision
> will not be made anytime soon. When a decision is rendered, the probability
> that it goes against Microsoft may be 50%. More importantly, if the
> decision does go against Microsoft, it is unlikely that any remedies sought
> by the court will have a material impact on Microsoft's earnings in the
> foreseeable future. Therefore, it makes sense for investors to focus on the
> fundamentals, which remain strong, and dollar cost average on any weakness
> in the stock price caused by the trial. And if you can find another company
> with $17 billion in cash, 91% gross margins, $3 billion in deferred revenue,
> and earnings growth of 25%, buy it.
> |
