RealTime IT News

Microsoft's Sleight Of Hand

I do believe I saw Don King give a wink and a nod to Microsoft following the software giant's better-than-expected quarterly earnings results released after the bell yesterday. Investors wasted all last week nail-biting over the bellwether's upcoming release; but folks, when you get to be the preeminent poster-child for tech stocks, earnings numbers begin to look a lot like a fixed title bout. And make no mistake, the fix was definitely in on Softie's latest release.

Behind the curtain, Microsoft's army of crackerjack pocket protectors and pencil pushing accountants were crunching the firm's numbers to figure out how best to affect a rebound in Softie's slumping share price. With the stock off more than 50% on the year, this latest quarter would have to be a doozy. And as if on cue, Microsoft's financial wizards managed to pull a seemingly impressive rabbit out of the hat. Consensus forecasts called for $0.41 per share, and the prizefighter weighed in a nickel ahead of estimates. So how'd the company do it? With a little sleight of hand of course.

The magic words here are: "profits from investments" and "spending cuts."

First, let's get one thing straight. Microsoft makes money hand over fist no ifs, ands, or buts. And through the company's conservative guidance to analysts that typically follows each blockbuster quarter, Microsoft is virtually guaranteed to beat expectations quarter-after-quarter. But when your share price is at its lowest levels in two years, you don't just exceed analysts' estimates - you blow them out of the water. The quickest way to over-inflate the bottom line numbers is through profits from investments and trimming expenses.

Let's face it, Windows 2000 isn't flying off the shelves quite as fast as analysts had anticipated, and Microsoft's CFO called sales of Windows Me "good." In Microsoft speak, that means sales were just "eh." But with the sale of online check approval start-up Transpoint, which Microsoft held a stake in, to Checkforce, plus gains from the sale of Microsoft's Sidewalk Web property to Ticketmaster Online-CitySearch , Microsoft added a whirlwind $0.03 to its earnings results.

What's more is that a chunk of the remaining $0.02 upside surprise stemmed largely from belt tightening efforts related to expenses. That means the eight hundred pound gorilla made a handful of lucrative investments and cost-cutting measures, but in-house sales from Microsoft's OS were relatively flat, flat, flat. But, let's keep things in perspective. The market is sicklier than ever, and the appearance of knock-your-socks-off earnings from a high-tech graybeard like Microsoft is just what the doctor ordered. And as Don King would undoubtedly say, everybody loves a winner.

Any questions or comments, love letters or hate mail? As always, feel free to forward them to kblack@internet.com.

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