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  • bengraham650 bengraham650 Jan 23, 2013 11:52 PM Flag

    30 by Friday? Office and Servers strong: Wall Street Journal (see article)

    Microsoft Holds More Than Meets the Eye By SPENCER JAKAB..
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    Scratch below the Surface, and you may like what you see. Microsoft Corp.'s MSFT +1.69%fiscal second-quarter results, due Thursday, are viewed as a litmus test of the software giant's bid to become cool and relevant again. It was the first period to reflect October's launch of the company's Windows 8 operating system and the associated Surface tablet. Microsoft pulled out all the stops, committing a reported $1.5 billion—that isn't a typo—to market the platform.

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    Microsoft is committing a reported $1.5 billion to market Windows 8 and the Surface tablet.
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    Its initial bang for the buck may have fallen short, as earnings estimates for the quarter ended in December have dropped to 75 cents a share from 90 cents last summer. A year earlier, Microsoft earned 78 cents.

    Key to Microsoft's profit is an expected jump in revenue at the critical Windows Live division to $5.8 billion, from $3.24 billion last quarter, as the new operating system went on sale. An executive recently said Microsoft sold over 60 million licenses or upgrades for Windows 8.

    That is good, but not great. Analysts at Deutsche Bank DBK.XE -1.50%were among those trimming fiscal 2013 estimates recently on weaker-than-expected PC sales. But while a disappointing result or outlook on Thursday could send Microsoft's shares skidding, the risk to shareholders actually is lower than before the launch.

    Following exhaustive reviews, investors already know Windows 8 and associated products aren't a disaster. Sales may have trailed expectations, but they were nevertheless substantial. Meanwhile, Microsoft has trailed the S&P 500 by 13 percentage points over the past four months from a level that already had value investors taking notice. Now, at 9.6 times forecast fiscal 2013 earnings, the stock still trades with a question mark hanging over it.

    True, the Windows Live division always has been Microsoft's cash machine, churning out billions of dollars annually to reward shareholders and invest in less-profitable units. But Microsoft is more than Windows. The company's Servers & Tools and Microsoft Business divisions generated a combined $23 billion in operating income over the past four quarters. The company's market value less net cash is just 7.5 times as much, a modest valuation even without Windows.

    Investors fretting about the success of Microsoft's glitzy new platform should appreciate that beauty is more than skin deep.

 
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