Saturday, 27 October 2007

Microsoft has the bestest of weeks

Last week Microsoft stock soared by 16% to end at $35. That is the highest stock price (according to my records) in over 6 years since a brief post dot com rally in 2001. Indeed the fairest point to take is 11th April 00 when Microsoft shares closed at $35 on the day the bubble burst.

It might have looked as if the week had started badly for Microsoft as, on Monday, all the news centred on the EU being the “winner” in their long standing dispute. Ironically, I’d written an article that day on how companies should avoid court battles – almost at all costs. That Microsoft and the EU “compromised” in the end is a thoroughly “good thing”. So I’d actually put Monday’s EU agreement on the "Positive News" pile for Microsoft too. Just thank goodness that’s all over now and developers can get on with the job..

Then Microsoft announced its 1.6% stake in Facebook where the headline was the implied Facebook valuation of $15billion. As I said in my post at the time, a much better way of looking at the $240m investment was as a means of not only gaining an exclusive deal on Facebook advertising but also gaining some influence over the MyTop - what I believe will be the most important “Next Big Thing” around for the sector. It had a further advantage in keeping Google out…for now anyway. $240m is ‘chicken feed’ for Microsoft and I have absolutely no doubt that it was a good deal – even if it gets no return on its equity investment. (Bluntly, I doubt that too. Facebook has every chance of becoming the next Google – even more so with Microsoft's help. In which case I’d have liked the opportunity to invest in this round too!)

Then the crowning glory of the week came on Thursday when Microsoft announced its Q1 2008 financials (3 months to 30th Sept 07). Revenue growth of 27% was a real stunner – the best Q1 growth since 1999. We should remember that the whole global software market is only growing at c7% according to Gartner. Microsoft has long tried to remind us that it is now subject to the law of big numbers (small companies can record high growth but when you’re big and dominate your market it’s a lot, lot tougher)

Unusually, the good news in the results was across the board. The launch of Halo 2 powered the Entertainment & Devices business to a 91% growth to $1.93 billion in the wake of increased XBox sales. 85m copies of Vista were shipped powering the Client business up 25% to $4.14billion. The new Office suite is doing well too which helped the Business division to a 20% growth to $4.11billion. Even Online services (that’s the bit that includes MSN and Live) grew 25% to $671m but still made a loss of $264m.

I think this is the most positive article I have written about Microsoft for a long time (if ever!) I can and do ‘bash’ Microsoft too – but both the news and the results this week deserve positive comment.

And we should all remember that our industry is more dependent on Microsoft than any other company. They do well and it has a knock on effect on almost every sub sector – from Intel microchips to IT support.

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