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

To: D. Swiss who wrote (17831)	3/12/1999 5:06:00 AM
From: puborectalis	Read Replies (1) \| Respond to of 74651

Optimistic Microsoft stands alone BY ADAM LASHINSKY Mercury News Staff Writer TO HEAR Microsoft Corp. (Nasdaq, MSFT) tell it Thursday, everything in the PC industry is hunky-dory. Easy for them to say. Others are warning of slowing demand and eroding prices. The better question is whether Microsoft's optimism is an accurate barometer of the rest of the industry. It's possible that Microsoft is whistling a happy tune that's simply at odds with the drumbeat of dismal pre-announcements from other technology companies. But given Microsoft's track record when it speaks for its customers, it's more than plausible Microsoft is right. Let's deal first with what we know. Microsoft Chief Financial Officer Gregory B. Maffei called a special teleconference with analysts Thursday to deliver two pieces of news. One was technical in a financial sense: Microsoft will not record $400 million of revenue in its third fiscal quarter ending March 31 because copies of its Office 2000 software program will not ship until the following quarter. Microsoft already has collected the money, however, so the $400 million will remain ''unearned revenue'' until the company delivers the goods. The effect simply is a matter of accounting. Maffei said the $400 million will shift from one quarter to the next and won't affect annual sales. The second news nugget involved Microsoft's outlook. ''We are seeing the usual seasonal trends, nothing more, nothing less,'' he said, acknowledging the warnings of disappointments from other tech industry players like Compaq Computer Corp. (NYSE, CPQ), 3Com Corp. (Nasdaq, COMS) and Ingram Micro Inc. (IM). ''My comments are meant to be calming.'' Maffei added that Microsoft isn't changing the guidance it gave investors in its Jan. 19 conference call to report second-quarter earnings. So Microsoft is comfortable with analysts' forecasts it can earn 58 cents per share in the current quarter, which is the previous estimate of 65 cents minus an 8-cent-per-share hit from the deferred software sales. Maffei even suggested Microsoft could meet the 65-cent-a-share estimate despite the software delay because of extraordinary investment gains. ''It's not unusual we find a little upside,'' he deadpanned, as if teleconference participants weren't aware that Microsoft nearly always beats Wall Street's estimates. What we don't know is how much Microsoft's confidence can be extrapolated to the rest of the industry. Intel Corp. (Nasdaq, INTC) answered its own set of rumors Wednesday, saying it isn't planning to change its guidance for the first quarter. That's somewhat reassuring but hardly a shot in the arm. It's not clear that the absence of a negative is a positive. Meanwhile, 3Com, Compaq, Ingram and others suggest there's a slowdown. Most notable is Ingram, the Santa Monica-based distributor, which announced Thursday its second consecutive quarterly shortfall and a layoff of 10 percent of its workforce. Microsoft's Maffei weighed in on the other companies in the industry as well. Trouble for retailers and distributors is explained in part by efforts by International Business Machines Corp. (NYSE, IBM) and Compaq to sell directly to their customers. Independent manufacturers selling primarily to small businesses, he said, are ''very strong.'' It's tough to get a handle on the situation when the news is gloom and doom from some quarters and reassuring from the industry leader. But think back to Oct. 21, the day after Microsoft's ordeal with the Justice Department began, when the company announced a blowout quarter, guided analysts to raise their estimates and spoke kindly about the rest of the market. ''Our results are not unique,'' CFO Maffei said then. ''Current results from Microsoft do not suggest an economic meltdown.'' Microsoft's stock traded for about $100 a share then. The shares closed Thursday at $161.44. And the rest of the technology market came roaring back for the rest of the year and well into January. Whom to believe, Microsoft or (seemingly) everyone else? HEY, HEY HEALTHEON: Never underestimate the power of an influential brokerage on a volatile stock. As noted here Wednesday, Goldman Sachs & Co. was the only underwriter of Healtheon Corp.'s (Nasdaq, HLTH) February initial public offering not to begin recommending Healtheon's shares at the beginning of week. Monday was the 26th day after Healtheon's IPO became effective, the first day analysts who work for the underwriter are allowed to publish their research. Stephen Savas, Goldman's health care information technology analyst, piped up Wednesday with a ''market outperformer'' rating, the brokerage's second-highest. ''First-mover advantage in an industry has given Healtheon a valuation that should allow it to consolidate a fragmented emerging market,'' he told clients. Translation: Expect Healtheon, which is peddling a way to connect health care players on the Internet, to use its inflated stock to acquire numerous competitors. Investors responded exuberantly to Goldman's enthusiasm. The stock rose 62 percent Wednesday to $48.50 a share, giving a market value of $3.3 billion to a company that had 1998 revenues of $48.8 million. The stock fell back 13 percent Thursday to $42.13 a share. Ho-hum. Contact Adam Lashinsky at the San Jose Mercury News, 750 Ridder Park Drive, San Jose, Calif. 95190, or siliconstreet@sjmercury.com or (408) 271-3782.