Microsoft shares tread water even if they stay afloat

Posted by: Aaron Pressman on September 4, 2007

Ever since April, when computer tech guru Paul Graham declared that “Microsoft is dead,” the debate has raged on. Meanwhile, the software giant’s shares (Symbol: MSFT) had a nice little contrarian run following Graham’s piece, crossing above $31 for only the second time since the bubble popped. It didn’t hold, though, and Gates and Ballmer’s progeny is back down in the $28-ish range it’s held for years.

Today, the latest attempt to counter Graham’s spin arrives from online entrepreneur and former journalist Phil Sims. He’s got seven quick and concise reasons why Microsoft is “far from doomed.” There’s the usual Vista’s not so bad, big companies won’t ever switch and Xbox rules stuff (Xbox rules? Hmm, maybe not). I do take Sims’ point that too many people think Microsoft must succeed on all fronts and in all endeavors when in fact the company only needs a big hit or two to keep rolling in dough.

But he’s still tilting at windmills. Graham’s point wasn’t that Microsoft was about to go bankrupt. Your Microsoft bonds, if there were such a thing, would still be a fantastic stick-in-the-mattress investment. His point wasn’t even directed at investors but more at the intellectual side of tech - who will develop the next great ideas and new markets? The money quote was “no one is even afraid of Microsoft anymore. They still make a lot of money—so does IBM, for that matter. But they’re not dangerous.” There’s not much Sims has to say on that point. Sure, Windows may be an “immovable object” that will keep pouring out cash until the end of time and the softies still have the funds to buy out almost any lil company they want, like Facebook or Salesforce.com (CRM). Sorry, no great insight there.

Sims also said little to reassure stockholders. The market don’t seem to care much that Microsoft’s businesses for businesses keep ticking along, as Sims argues. Net income last year of $12.6 billion was barely above the 2005 level of $12.3 billion. Cash from operations was down to $14.4 billion from $16.6 billion in 2005. And the stock traded off with the rest of the market after hitting a mid-July high.

Microsoft used to be a high-flying growth outfit. Today it’s a dividend-paying megacap with a price to earnings ratio not much higher than the market. That’s not a terrible place to be but it’s not so exciting, either. Maybe Ballmer’s new mantra ought to come from the famous bit in Monty Python and the Holy Grail: “I’m not dead yet.”