Microsoft was the 800-pound Gorilla on Steroids

Now the Party May Be Over for the Super Stock Has Become a Beta

Sep 15, 2009

Ringside hooters juicing up the mayhem of a WWF wrestling Smack Down could not exhibit more of a love-hate relationship than the one between Microsoft and its customers.

On one hand, fans appreciate the stylish Microsoft Windows arpeggios and elegant screens, not to mention the broad innovative scope of programs and applications. On the other hand, foes disdain certain intrusive characteristics, such as tendencies to "secure" and “upgrade” customers to death.

New Versions of Windows Are Really Only Works in Progress

These upgrades and other commercial plugs pop onto the screen endlessly, invading computer sessions like pro linebackers paid by tackles made. They continue until kinks nobody dreamed existed are flushed out of what appeared to be a complete machine, at the time of purchase.

From the founding of the company in 1975 by Seattle's Bill Gates and Paul Allen, Microsoft has dominated the operating systems of the personal computer market. To do this, it has relied on two strategies - innovative technology and bullying personal computer manufacturers into installing only their software in new machines, as court records indicate.

In addition, according to an article by Oneya B. Fennell on the University of Virginia home page, Professor Kenneth Elzinga of the University of Virgina suggests the company is paranoid. Professor Elzinga was the economic adviser to Microsoft during its classic antitrust suit brought by the US Justice Department.

Microsoft's Business Practices Have Kept Courts Busy

The software pioneer is the target of many lawsuits. So litigious is the company that the website seattlepi.com publishes The Microsoft Blog, chronicling lawsuits and legal actions involving Microsoft. From 1982 to 2003, the company was engaged in 53 major lawsuits, ranging from patent infringement to antitrust actions.

The granddaddy of those suits was in 1998, when the US Department of Justice sued the company for antitrust violations and won an order for the company to split into two entities – operations, and research and development. Within the year, they were defendants in two new actions.

In Court the Company Is a Powerful Presence

The company has been so powerful, through its hold on how computers operate, that it takes on states, countries and even regions, in defending its actions. According to one source, the digital Goliath has been sued or investigated by California, Israel, Italy, the European Union (17 countries), the United States and the attorney generals of 20 states.

Wagons of public-spirited citizens, technological innovators and entrepreneurs are circling Microsoft’s campfires, egged on by judiciaries of the world that seem bent on rectifying an unacceptable situation. Mozilla Open Source, Linux, Mac OS and Sun Microsystems, for example, are up in arms and slowly penetrating Microsoft's markets.

Throughout the world, momentum is gaining for the idea that access to and navigation of the Internet is too important to allow a monopoly or even an oligopoly to fetter it. Maybe Microsoft management sees the writing on the wall, and will begin acting like part of an industry of the world rather than king of the nearby Olympic Mountains.

Early Investors Are Beneficiaries of Microsoft’s Empire-building

In spite of the siege by the agitated wannabes at the company's gate, long-term stockholders of Microsoft should be a happy lot. One share of stock in its IPO at $21 on March 13, 1986 has expanded into 288 shares, through nine stock splits. Today the original $21 per share is worth $7,200, representing a compounded growth rate of 29 percent annually. Not bad after the recent market crash, but the party might be over.

Although investors are not by nature corporate reformers, perhaps they should take a closer look at Microsoft’s investment situation, for their own welfare. There are cracks opening in the corporate walls of the fortress guarding the shores of Puget Sound in Washington.

Growth Is Flattening for the Digital Goliath

While revenues, net income and earnings per share have increased each year since 1985, except in fiscal 2009 ending June 30, the trend of the magnitudes of changes each year has been declining. It is apparent that growth of the company’s revenue base is flattening out. (See charts at foot of page.)

Analysts of 27 brokerages currently follow the investment desirability of Microsoft - stock symbol MSFT and price $25.26, on the NASDAQ Exchange. According to Yahoo! Finance, the average research rating is 2.1, on a scale of 1.0 to 5.0, where 1.0 is a “sale” and 5.0 a “buy.” This under-the-mean score suggests a lukewarm attitude at best toward MSFT’s expected stock performance, by the investment community.

Microsoft Common Now a Beta Stock and the Party May Be Over

In the lexicon of money managers, MSFT is a 0.93 Beta stock, as reported by MSN.money. A perfect Beta is 1.00 and identifies corporate biggies that move in harmony with the stock market, but are not true growth stocks.

Microsoft has reached the critical mass of an 800-pound gorilla whose trainer has stopped slipping steroids into its banana pudding. Notwithstanding, this quality stock with a 15 percent debt-to-equity ratio should participate fully in any future recovery of the market; for among institutional investors, the shares are icons, and will be sold with great reluctance.

The copyright of the article Microsoft was the 800-pound Gorilla on Steroids in Shares/Stocks is owned by Howard Bryan Bonham. Permission to republish Microsoft was the 800-pound Gorilla on Steroids in print or online must be granted by the author in writing.