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25 IT Investment Research Findings for the Future from Microsoft’s FY 2006 10K
IT Investment Research
Microsoft ended the fiscal year through June 30, 2006 with revenue of $44.28 billion, an 11% increase over the prior year. Driven by new products such as SQL Server 2006 and Visual Studio 2005, other server and tools products, xBox 360, and double-digit bookings growth in the core business, revenue is now running at an almost $50 billion runrate. However remember that the company's quarterly pattern is very seasonal and FY 2007 is very dependent on notoriously late new product release availability (e.g., Christmas sales for some PC lines will be very dependent on how Vista GA is handled). The major Microsoft IT Investment Research Finding is that the Microsoft's FY 2007 outlook is less than secure. In addition to the precarious dependence of its own delivery history, Microsoft is also facing a possible overall IT market slowdown and its major customer, Dell (10% of Microsoft revenue) is having problems as well.
Another factor for investors to consider (Microsoft IT Investment Research Finding 2) is Microsoft's legal troubles. As we find out later, even Korea is piling on, following behind the European Union's (EU) inexplicable June finding, former Massachusetts politician Thomas Reilly, the former Massachusetts CIO, and so forth. In my opinion, Microsoft merely looks at all of these fines and settlements as a cost of doing business but if the drumbeat continues, the legal issues could affect market dynamics. Until now, the competitors that initiated all the investigations and allegations have not tended to use them in any organized manner in sales and marketing (settling instead to settle for a fat fee) but that could change, especially outside the United States. Microsoft on the other hand inexplicably to me has chosen not to fight back. This too could change and could be one of the catalysts of the market slowdown (as measured by revenue) mentioned above.
'25 IT Investment Research Findings You Need to Know about Microsoft' reviews all of the key sections from Microsoft's August 25, 2006 10K SEC filing in detail and provides both
- Technical explanations that I think investors will find helpful
- Opinionated analysis, where warranted, that investors may find actionable.
- The two leading Microsoft IT Investment Research Findings mentioned above are explained in more detail along with 23 others.
Foreword
This document provides an explanation and analysis of the August 25, 2006 Microsoft 10K and is organized like that document, as follows
- Section I--In Part I, Item 1 of its August 2006 10K filing, Microsoft describes the 'business' that it is in. Section I of this document describes what these paragraphs mean literally
- Section II—This section provides my opinion of the business description in Item 1 of Microsoft's August 25, 2006 10K (Note that Tables 2 and 3 in the appendix align the description section of the 10K, my explanation, and my analysis—column by column—in one easily referenced presentation that follows the exact order of the 10K)
- Section III—The Microsoft filing continues with Part I, Item 1A, Risk Factors, which is the most important and useful portion of most 10K filings in terms of holding management's feet to the fire. Section III and Table 4 address the risk factors presented by Microsoft, their literal meaning and my opinion of the risk (if an opinion is warranted) in the same manner described above for Item 1 (that is, a narrative exposition of key points in the section and a column-by-column presentation in the table that follows the exact order of the 10K). A short description of Items 1B, 2, 4-6 is also included along with a more detailed explanation and analysis of the Item 3, the Legal Proceedings section
- Section IV—This section and Table 5 cover Item 7, Microsoft's 'Management Discussion” of operating and financial results using the same presentation approaches described above; the remaining items of the Microsoft 10K filing (7A-15) that are straightforward and not relevant from an IT Investment Research point of view are covered in short narratives only.
- Section V—The conclusion summarizes and ranks the top 25 Microsoft IT Investment Research Findings, which appear in Sections I-IV and in detail in Tables 2-5.
About the Author
Dennis Byron has more than 30 years experience researching and analyzing all areas of information technology (IT) and information-systems use. He conducted software and systems industry research and analysis at the Datapro division of McGraw-Hill from 1991 to 1997 and IDC from 1997 to 2006. At Datapro he was involved with the creation of, and later managed, the Client/Server Analyst research service. Byron joined IDC in 1997 to manage research into industry-specific applications, and initiated IDC research into eCommerce, retail, and professional-services applications, and the automation of the services supply chain. In early 2003, he moved to conduct the IDC's analysis of application and integration server software and related middleware, and the emerging market for business process management (BPM) software. Before he began research and analysis for Datapro, he spent 20 years in information-technology marketing at Bull SA and the former Data General Corporation.
He has consulted in the deployment and marketing of technology ranging from CICS to simple RPC decomposition tools to the first ORBs to later generations of Tuxedo, to DCOM and IBM's Project San Francisco. Some of this research supported the commercial marketing of Multics in the 1970s, the launch of the 'Soul of A New Machine' in the 1980s (the ‘machine,’ not the book), and business process reengineering (BPR) software in the 1990s. He has conducted over 500 specific information-systems case studies. Mr. Byron also was a columnist for Application Development Trends magazine and has written extensively on the I-T industry standards movement, from the early use of PARS to the de facto and de jure agreements behind the burgeoning use of web services architectures and SOA.
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