10/23/96 Reaction to Microsoft Q1 Earnings

09/19/96 Windows CE Announcement

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To paraphrase Microsoft's marketing campaign, "Where did Microsoft go today?" Wherever MSFT may go, the Fool's got coverage for you. This special provides great coverage of the earnings announcement, and helpful links for learning more and sharing your thoughts with others.

Transmitted: 10/22/96

Reaction to Microsoft Q1 Earnings
By Alexander Wolfe, courtesy of EE Times

With its spectacular quarterly earnings this week Microsoft Corp. bought itself some breathing room as it continues to remake itself from a purveyor of so-called "shrink-wrapped" applications -- e.g., word processing programs sold off the shelves of retailers like Egghead Software -- into an on-line powerhouse that markets its technology over the Internet.

(Microsoft's earnings exceeded analysts' estimates, hitting 95 cents per share compared to expectations of only 90 cents. Overall, for the quarter ended Sept. 30, Microsoft toted up earnings of $614 million, up from $499 million for the comparable fiscal 1995 period. On Monday, that bumped the stock -- MSFT, on Nasdaq -- up more than $2, to $136,375.)

Analysts are cheering Microsoft's healthy earnings report, but any Fool can tell you that the company's good times won't last forever. There's a reason Bill Gates and company are rushing to embrace cyberspace, and it's more than just 'Net fever. For one, corporations are increasingly reluctant to shell out millions of dollars every quarter just to equip their PCs with the latest bloated revision of Microsoft Excel or Word.

Moreover, the latest computer "paradigm shift" will see PC operating systems like Windows 95 morph into browser-based desktop, wherein computer users will run all their applications from inside Web viewers like Netscape Communication Corp.'s Navigator or Microsoft's Internet Explorer.

To fuel these browsers, users will get their software and content off of the Net, not from computer retailers. There's just one little stumbling block for companies, like Microsoft, which provide downloadable programs: How do you make any money at it? Indeed, it's treacherous out there. Over the past two years, Netscape grabbed most of the Web-browser market without coining hardly a nickel. Maybe they were just ahead of their time -- on Monday (Oct. 21), they had some good news, posting profits for their third quarter ending Sept. 30 of $7.7 million (9-cents a share), compared to a slim $175,000 during the same quarter last year.

Though that's an inspirational report for companies eyeing the Net, it must give Microsoft some pause because such profits could barely pay for a painting at the new house Bill Gates is building.

Still, Microsoft has a much wider range of programs to offer than Netscape. Moreover, Gates may have found a way to rope customers into his software corral: Get 'em while they're young. At its Web site (http://www.microsoft.com), Microsoft is currently giving away dozens of heavy hitting software-development tools. These enable profession programmers to build everything from multimedia-enhanced video games to Java "applets" for the Web.

As Microsoft's tools get snapped up by millions of developers, the company will be in a position to coin money, by pulling the plug on the free downloads and selling those programmers the upgrades and enhancements they'll need as they move forward.

Buy now, pay later. In a nutshell, that's Microsoft's message revealed. Now that's a winning strategy.

(c) CMP Media, Inc

[This article comes from EE Times in a joint cooperative effort with the Motley Fool. For more articles like it, please look at Fool's Gold every weekend or simply go to the Fool's Gold Mine and page through our back issues, which all have clever and cool EE Times articles in them.]