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Jul 18, 2008

Q2 Earnings

LIVE: Microsoft Q4 Earnings: In Line, But Guidance Is Light (MSFT)

Release out. Microsoft's Q4 is mostly in line with consensus - thought it missed EPS by a penny. Guidance for the next quarter is a little light. And the online business continues to underwhelm - Microsoft doubled its Q4 loss, y/y, and lost another $1.2 billion over the last year while trying to figure out the Web.

Reviewing numbers now; call at 5:30 est.

Key Metrics:
Revenue: $15.84 vs. 15.65 billion consensus, $15.5-$15.8 billion guidance
EPS: $0.46 cents vs. $0.47 consensus, $0.45-$0.48 guidance
Operating Income: $5.684 vs. $5.8-$6.2 billion guidance

Q1 Revenue Guidance: $14.7 billion - $14.9 billionvs. $15.06 billion consensus
Q1 EPS Guidance:
$0.47 or $0.48 vs. $0.49 consensus

2009 Revenue Guidance: $67.3 b - $68.1b vs. $67.29 billion consensus, $66.9-$68.0 billion prior guidance
2009 EPS Guidance: $2.12 to $2.18 vs. $2.16 consensus, $2.13-$2.19 prior guidance
2009 Operating Income Guidance: $26.3 billion to $26.9 billion vs. $26.7-$27.4 billion prior guidance

Divisional Revenue Breakdown (Citi Est.)
Client: $4.37 billion vs. $4.19 billion est.
Server/Tools: $3.74 billion vs. $3.67 billion est.
Online Services: $838 million vs. $949 million est.
MBD: $5.26 billion vs. $5.37 billion est.
Entertainment/Devices: $1.58 billion vs. $1.55 billion est.

I.B.M. Income Rose 22%, Beating Forecasts

Published: July 18, 2008

SAN FRANCISCO — I.B.M. reported Thursday that its net income rose 22 percent in the second quarter to $2.77 billion, or $1.98 cents a share, from the quarter a year-ago quarter.

The company said revenue climbed 13 percent, to $26.8 billion.

The earnings were well above Wall Street’s expectations. Analysts had expected $1.82 cents a share and revenue of $25.92 billion, according to a survey of analysts by Thomson Financial...

Release out. As we feared, a miss (albeit on bottom line instead of top line).

Gross revenue and net revenue in line, EPS light. Most of EPS miss from interest income and higher G&A, which isn't good news, but also isn't that big a deal. Massive CAPEX once again hammered free cash flow, which has been flat for four quarters (Where on earth is all this money going?). Revenue benefitted heavily from FOREX, and certainly wasn't the upside surprise the Street was looking for. Stock down hard in aftermarket.

Bottom line: In light of ongoing revenue deceleration and margin compression, stock multiple should continue to compress. We continue to think fair value is 25X-30X free cash flow vs. the 40X everyone has gotten used to.

(And more great news: Microsoft earnings in line, but guidance light). (Link to Google webcast).

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