Microsoft’s (MSFT) earnings took Wall St. by surprise. It was a big enough jolt to take the shares to a level they have not seen since 2001, well above $35. The move after hours added over $30 billion to Microsoft’s market cap.
But, investors should have seen the news coming. The first lines of code were being written for Vista at least five years ago. The market was concerned that the new OS would not get wide acceptance. But, that would assume that the product would be poor and that PC customers would be willing to abandon Windows, the only game in town. Neither of those things were in the cards.
Microsoft always gets a big revenue surge when it introduces a new version of its OS, and this time was no exception. Revenue in the company’s big Client division rose 25%.
The same holds true for Xbox. The product was introduced in late 2001. Microsoft lost $1.9 billion in its device division in the last fiscal year. The Xbox has cost Microsoft well over $5 billion in losses. But, the company was dogged, and it finally cut into the lead of the Sony Playstation franchise. When Sony stumbled with the PS3, Microsoft had not only brought out its Xbox 360, but it had established its "Halo" video game franchise over a period of four years. In the last quarter, the devices division of Microsoft grew 91% and made money for the first time. Ever.
Steve Ballmer became the CEO of Microsoft in 2000. The work on Vista and the Xbox began within a year of that. In many ways, the break-out quarter that the company has just had and its strong guidance is a signal that Ballmer’s seven years running the company have transformed it from being just a software firm. It is not Bill Gates’ company any more. Ballmer has done too much to change it.
Microsoft’s big quarter was born in 2000 and 2001. In the long cycles of huge enterprises, it took years for the results to be seen in the market.
But, the great big quarter was not built overnight.
Douglas A. McIntyre
Top Gaining Stocks
Top Losing Stocks