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The Microsoft Financial dilemma:

The driver is the financial market, Microsoft's past success is their folly.

Software business == Be aware of the Microsoft Financial dilemma

Financial market realities... Microsoft's past success is their folly.
1992 Dec 31Q MSFT revenues were $938mil
2001 Dec 31Q MSFT revenues were $7741mil
This is a yearly 26% increase... this means
2005 Dec 31Q MSFT revenues should be $18924mil
Is it the beginning of the end?

CEO of Microsoft owned up to the following in this article:
"We have prided ourselves on always being the cheapest guy on the block--we were going to be higher volume and lower priced than anybody else out there, whether it was Novell, Lotus or anybody else," said Ballmer, during a keynote that closed the event. "One issue we have now, a unique competitor, is Linux. We haven't figured out how to be lower priced than Linux. For us as a company, we're going through a whole new world of thinking."

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Microsoft's Quarterly report 10Q February 08, 2002
10Q report on Yahoo

Revenue

Revenue for the second quarter of fiscal year 2002 was $7.74 billion, an increase of 18% over the second quarter of fiscal 2001. The revenue growth was driven primarily by the launch of Microsoft Xbox video game system and licensing of Microsoft Windows XP Home and Professional operating systems. For the first six months of fiscal year 2002, revenue was $13.87 billion, an increase of 13% over the first six months of fiscal 2001. The revenue growth was driven primarily by licensing of Microsoft XP Home and Professional and Windows 2000 Professional, the launch of Microsoft Xbox video game system, and licensing of Microsoft SQL Server.

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Microsoft's annual 2001 earnings - September 18, 2001
The Company's revenue growth rate was 29% in fiscal 1999, 16% in fiscal 2000, and 10% in fiscal 2001.

In fiscal 2001, the Company reported an investment loss of $36 million, a decrease in investment income of $3.36 billion versus fiscal 2000.

Desktop and Enterprise Software and Services revenue was $17.84 billion, $20.40 billion, and $22.41 billion in 1999, 2000, and 2001.

2000 Bottom Line:
$22,956 million in Gross revenue
$ 9,421 million in net income

41% of gross revenue is net income (profit)

2001 Bottom Line:
$25,296 million in Gross revenue
$ 7,346 million in net income

29% of gross revenue is net income (profit)

Yahoo Provided Microsoft Income Statement(2001 Yearend)

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Financial Condition

Cash and short-term investments totaled $30.02 billion as of March 31, 2001. Cash flow from operations was $9.84 billion in the first nine months of fiscal 2001, an increase of $1.11 billion from the first nine months of the prior year, reflecting the growth in earned and unearned revenue.
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The financial market _requires_ an increasing revenue with an increasing earned income stream (roughly every $100 of gross revenue results in $38 of retained earnings - May 2001 Quarterly Report)

Complete Financial report at SEC website(Edgar-online.com)
So how can this be _increased_???

Squeeze the customer even more - charge more, provide less, make more money, while making the customer think they are getting more for their money.

This is not a conspiracy theory, just simple monopolistic capitalism.

(Check if your mutual fund owns this stock - likely that it does).

The real scary thing is, that every software company wants to be just like Microsoft (the ones that do not, the financial market does not understand, and thus do not have a decent stock price).

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