For years I have thought Microsoft was in deep trouble and yet they were continuing to generate tons of cash (which is not something to take lightly – it is a very strong signal of a successful business). But the future for them just keeps looking worse and worse, to me. The Windows and Office profit centers seemed doomed to collapse (Ubuntu is a great operating system and you have Open Office and Google doc both of which I find fine). The server business and managing corporate networks is one of the few hopes for Microsoft, I think. And things don’t look good there (though probably better than the other profit centers).
It isn’t as though Microsoft doesn’t see the problems. They are trying to build up a gaming business and they have hopes there, I think (not to replace current profits but at least to capture some significant profits). I really am amazed how poorly they have done online. They have invested a ton and continue to lose a huge amount every quarter (over $700 million in the quarter ending March 31st of this year.
Yet year after year Microsoft continued to have tremendous earnings. I can’t see it continuing, but I would not have predicted the earning power they have shown the last 5 years so what do I know. In April Microsoft announced record third-quarter revenue of $14.50 billion for the quarter ended March 31, 2010, a 6% increase from the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $5.17 billion, $4.01 billion and $0.45 per share, which represented increases of 17%, 35% and 36%, respectively, when compared with the prior year period.
There is the prayer that the huge amount they invest in research provides future earnings. I do believe their research is incredibly valuable. But I can’t see betting they will find enough earning to replace the losses I anticipate for Windows and Office revenue.
Apple (about $245 billion) has overtaken Microsoft (about $227 billion) in market capitalization. To get the enterprise value (the value of the company excluding cash). Apple has about $38 Billion in cash (including $18 billion in treasuries with a maturity of over 1 year – so not shown as cash on the balance sheet). Microsoft has about $31 billion in cash ($37 billion – $6 billion in debt). Therefore Apple’s business is valued at $207 billion and Microsoft at $196 billion.
Ballmer Dismisses Microsoft Value Issue (May 27, 2010)
Related: Google Posts Good Earning But Not Good Enough for Many – Tesco: Consistent Earnings Growth at Attractive Price – Jubak Looks at What Stocks to Hold Now – Amazon Soars on Good Earnings and Projected Sales
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