Microsoft Growth Is Flat, But Some See 'Value'

• Published in: The Wall Street journal. Eastern edition
• Main Author: Gregory Zuckerman and Robert A. Guth
• Format: Newspaper Article
• Language: English
• Published: New York, N.Y Dow Jones & Company Inc 10.12.2003
• Edition: Eastern edition
• Subjects: Alliances; Antitrust; Growth stocks; Heard on the street (wsj); Investments; Linux; NASDAQ trading; Open source software; Operating systems; Stock prices; Technology stocks
• ISSN: 0099-9660

One reason Microsoft hasn't shown much spunk is that its shares didn't fall as steeply as many other tech stocks. Microsoft shares are down about 56% from their all-time high of $59.97 reached Dec. 30, 1999. But Cisco Systems Inc., another one-time tech darling, has watched its shares plunge 72% from their peak, while Lucent Technologies Inc. is down 95%, even after a sharp rally this year (adjusting for stock splits and spin-offs). While the rest of the industry tanked, Microsoft harvested billions of dollars a year in deferred revenue in 2001 and 2002, posting double-digit revenue growth. The company's legal issues, including an antitrust investigation by the European Union and a longstanding antitrust suit with Sun Microsystems Inc., don't help. On top of that, the company faces a threat from the Linux operating system and other so-called open-source software. Microsoft's server group has grown in recent years by eating into the market share held by Sun Microsystems and other sellers of rival Unix software. But Linux, which is a close cousin to Unix and can be a cheaper alternative to Microsoft's Windows, now is gobbling up that market faster than Windows. "I'm a believer that superior cash flow is the place to be in 2004, and there's a compelling case that Microsoft is a play on that," says David Sowerby, a portfolio manager at Loomis Sayles & Co. in Detroit who owns Microsoft shares, though he isn't adding more shares. "But the stock is testing my patience."