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Finally facing the odds
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May 18, 1998: 9:00 p.m. ET
Win 98 takes on added importance as Microsoft expects growth to slow
From CNNfn Correspondent Terry Keenan
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NEW YORK (CNNfn) - On Wall Street they affectionately call it "Mr. Softee." And for good reason. Throughout this bull market Microsoft (MSFT) stock has served up returns that have won it a soft spot in investors' hearts.
Indeed, since going public in 1986, the stock has risen an incredible 20,000 percent and now has a home in one out of every five mutual fund portfolios.
But as Microsoft faces the biggest challenge in its 12 years as a public company, the software giant's core business is slowing dramatically.
After rising at a torrid 54 percent rate in fiscal 1997, earnings-per-share growth at Microsoft is expected to slow to one-third that pace in 1999 - or about 19 percent. That's outstanding by most measures but not for a stock that commands such a princely price.
"Microsoft's market cap right now is $208 billion. If you were to combine Ford and General Motors market cap(s) . . . that would only equal half of (Microsoft's) market cap. Granted, (Microsoft) by far is the premier growth company in the world today. But again, it is trading at 60 times earnings," Rick Berry, director of equity research at J.P. Turner & Co., said.
In fact, even before its latest run-in with the Justice Department, Microsoft conceded it would be difficult for it to continue outpacing the 15 to 20 percent annual expansion in the PC industry overall.
And in the past year Microsoft shares have reflected its transition to a more mature company - rising just 17 percent since last summer, which is just a bit faster than the overall market.
Given that backdrop, the timely and successful introduction of Windows 98, the company's first major new product in a year, takes on added importance.
"I think the biggest impact, were there a delay, would be on the consumer sector, but given that the Department of Justice is not asking to block the launch, it doesn't look like there'll be much of an impact," says Rick Sherlund, a software analyst at Goldman Sachs.
Nor will the cost of mounting litigation make much of an impact on the company's results. The real cost will be in the time and energy Microsoft will be spending at a time when its basic business, which has attracted so much scrutiny, is clearly slowing all by itself. 
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Microsoft
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