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Microsoft's (MSFT) Good News: It Is No Longer Just Software

Analysts hung crepe for hours after Microsoft (MSFT) announced it quarterly results. Revenue did not grow enough and earnings were light. Sales were actually down at the company's three huge divisions: client, servers, and business. Most investors did take heart in the company's 2009 forecasts of better days.

What may have been lost in the mayhem is that Redmond has two emerging business, both of which they have been in for years, which are starting to show promise. Just as important, neither is directly related to software.

After half a decade and billions of dollars in losses, Microsoft's game division, driven by the Xbox 360 and Halo 3 video game, posted an $89 million profit on almost $1.6 billion in revenue. Sales were up by 68%. A year ago the unit lost money. The revenue makes the "device" operation almost half the size of the company's server business and it is growing much faster.

Almost all Wall St. observers denigrate Microsoft's online business where the revenue comes mostly from MSN. The operation still loses a lot of money, but its revenue grew 40% year-over-year. That is at a rate close to Google's (GOOG) and one which is much better than Yahoo!'s (YHOO). Steve Ballmer has threatened to walk away from the Microsoft bid for Yahoo!. He says that his company can get along without the portal. The revenue from the MSFT online division don't prove that, but it at least gives the statement some credibility.

Everyone who understands Microsoft knows that it cannot live off of pre-packed software forever. There is, now, some glimmer of hope that it has a device business which could be very successful and an online business with an impressive growth rate.

Wall St. says that Microsoft cannot "go it alone" online. That is exactly what they said when the Xbox went up against the Sony (SNE) Playstation earlier in the decade.

Douglas A. McIntyre

Microsoft Beats, But... (MSFT)

Microsoft Corp. (NASDAQ: MSFT) just reported earnings after the close and the software giant posted $0.47 EPS on $14.45 Billion in revenues.  First Call had estimates at $0.44 EPS on $14.5 Billion in revenues. 

The company gave guidance of $0.45 to $0.48 EPS on $15.5 to $15.8 Billion in Revenues.  For fiscal 2009 it gave guidance of $2.13 to $2.19 EPS on $66.9 to $68 Billion in revenues.

First Call expects Ballmer-Gates & Co. is expected to post $0.48 EPS and $15.56 Billion in revenues next quarter, which also marks its June-2008 fiscal year end.  For fiscal June-2009, the estimates are $2.10 EPS on $66.5 Billion in revenues.

Unfortunately, many of the individual metrics for the company did not come right in with expectations. 

Entertainment and Devices showed a 68% gain and it now has more than 19 million Xbox 360 consoles out, servers and tools revenue gained 18%.  It also ended with more than $26.3 Billion in cash and equivalents.

Shares closed up 1.1% at $31.80 today, and shares slid by 3% initially to $30.85 in after-hours trading.

Jon C. Ogg
April 24, 2008

Microsoft Readies For Earnings (MSFT)

Microsoft Corp. (NASDAQ: MSFT) reports earnings after the close of trading today, and First Call has estimates at $0.44 EPS on $14.5 Billion in revenues.  Ballmer-Gates & Co. is expected to post $0.48 EPS and $15.56 Billion in revenues next quarter, which also marks its June-2008 fiscal year end.  For fiscal June-2009, the estimates are $2.10 EPS on $66.5 Billion in revenues.

Shares closed at $31.45 yesterday and a 1.5% gain to $31.93 has some of the numbers looking skewed.  The reason this stock is not at $35.00 or higher is because of the potential Yahoo! (NASDAQ: YHOO) acquisition share dilution, and the disruption that is currently happening.  Investors are going to be looking at this Yahoo! merger commentary quite closely.

Analysts are still positive and the average target from analysts is almost $39.00.  Its 52-week trading range is $26.87 to $37.50.  Its 50-day simple moving average is $28.68 and its 200-day simple moving average is $30.73.  With a gain of almost 4% yesterday and a 1.5% gain so far today, the expectations are for a strong report.  Options traders appear to be braced for a move of about $1.15 in either direction, which seems small on the surface.  We'd also note that options activity seems somewhat light compared to prior days that the software giant was set to report.

Based upon what we saw out of Q1 PC shipments last week, and based on comments out of IBM, Intel, and other key technology stocks, we expect the earnings to be a very strong report.

Jon C. Ogg
April 24, 2008

Microsoft Kisses 200-day Moving Average Ahead of Earnings (MSFT)

Microsoft Corp. (NASDAQ: MSFT) is set to report earnings after the close Thursday, and First call has estimates at $0.44 EPS on $14.5 Billion in revenues.

The software giant is also expected to post $0.48 EPS and $15.56 Billion in revenues next quarter, which also marks its June-2008 fiscal year end.  For fiscal June-2009, estimates are $.10 EPS on $66.5 Billion in revenues.

Based upon what we saw out of Q1 PC shipments last week, and based on comments out of IBM, Intel, and other key technology stocks, we expect the earnings to be a very strong report.

Shares closed at $31.45 today, and the reason these aren't at $35.00 or higher is because of the potential Yahoo! (NASDAQ: YHOO) acquisition share dilution.  Investors are going to be looking at this Yahoo! merger commentary quite closely.

Analysts are still positive and the average target from analysts is almost $39.00.  Its 52-week trading range is $26.87 to $37.50.

We do want to note the levels will be different tomorrow, but the stock is at critical levels that should act as pivot points.  Its 50-day simple moving average is $28.61 and its 200-day simple moving average is $30.71.  With a gain of almost 4% and a $31.45 close today, that new 200-day moving average in the morning is going to be very important at earnings.

We'll follow up with an updated information round ahead of the report tomorrow.

Jon C. Ogg
April 23, 2008

EMC Follows VMware Higher On Earnings (EMC, VMW)

Shares of EMC Corp. are running up after earnings.  The company's net income of $268.8 million came to $0.13 EPS GAAP and $0.16 EPS non-GAAP while revenues were $3.47 Billion.  First Call had estimates of $0.16 EPS and $3.45 Billion in revenues.

Storage systems posted a gain of 10% revenue gain, and that is its largest group.  Software license and maintenance revenue rose 18%.

CEO Joe Tucci also noted that the company is off to a strong year and that the company is on track to meet targets set at the beginning of the year.

The company also spent approximately $557.2 million to repurchase approximately 36 million shares of EMC common stock, which comes to roughly $15.47 per share.

EMC shares are up 5% at $15.39 in pre-market trading; and the 52-week trading range $14.01 to $25.47.  After VMware's earnings last night, its shares are up 12.5% at $65.27 in pre-market trading.

Jon C. Ogg
April 23, 2008

Jon Ogg is a producer of and editor for both the Special Situations newsletter and the "10 Stocks Under $10" weekly newsletter for 247WallSt.com; he can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

VMware Doesn't Repeat Prior Disappointment (VMW, EMC)

VMware Inc. (NYSE: VMW) decided not to make a repeat of last quarter's earnings disappointments.  The king of virtualization posted net income of $43 million on $438 million in revenues. Reported EPS was $0.11 net, but $0.22 from an operational EPS basis.

Second quarter 2008 revenues are expected to increase approximately 55% compared to the second quarter of 2007, which would translate to roughly $458.5 million; First Call has estimates of $422.3 million.

VMware said that it als "continues to expect" 2008 revenue growth of approximately 50% over 2007, which translates to $1.988 Billion; First Call has estimates at $1.99 Billion.

Diane Greene, CEO, sums it up easily, "....We are seeing customers progress more rapidly through the virtualization adoption path; many are now moving right into a VMware-based architecture...."

Shares have rallied 12% in after-hours to $65.00, which is partly helped by the 3.22 million shares (listed as 32% of the free float, although that may be wrong after lock-up and employee dilution).  As a reminder, shares of the parent, EMC Corp. (NYSE: EMC), are set to report earnings tomorrow morning before the open.

Jon C. Ogg
April 22, 2008

Jon Ogg is a producer of and editor for both the Special Situations newsletter and the "10 Stocks Under $10" weekly newsletter for 247WallSt.com; he can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Motorola Tries To Find Shinola in Virtualization (MOT)

Motorola, Inc. (NYSE: MOT) is making an investment through Motorola Ventures, which is its strategic venture capital arm.  The company has decided to go after the virtualization field and has announced that it made an equity investment in VirtualLogix.

VirtualLogix is a maker of virtualization software for communications devices and infrastructure equipment.  The good news is that Motorola is following the lead of other top firms.  Cisco Systems, Inc. (NASDAQ: CSCO), Intel Corp. (NASDAQ: INTC), and Texas Instruments (NYSE: TXN) are all listed as some of the backers on the VirtualLogix site. 

Unfortunately there is no way to know if this was a big transaction or not as the financial terms of the investment were not disclosed.  Motorola Ventures represents a diversified portfolio with a typical investment ranging from $3 million to $5 million.

Either way, it will end up being a small drop in the bucket for a company the size of Motorola.  One investment in a hot sector is not going to garner much attention.  It also isn't likely to make a dent in the major issues facing Motorola.

You can join our open email distribution list to hear about other key financings, secondary offerings, IPO's, and other special situation previews.

Jon C. Ogg
April 21, 2008

EMC & VMware, An Earnings Differential (EMC, VMW)

We already gave a preview for the stocks we consider the most go-to in tech-land this coming week, but there are other major and key stocks that are grouped in other manners.  Two such companies are VMware, Inc. (NYSE: VMW) and EMC Corp. (NYSE: EMC).  EMC saw a surge of interest in 2007 as it owned roughly 86% of the post-IPO Vmware, but that was then.  EMC sits only a bit more than 10% above its 52-week lows and VMware has lost more than half of its post-IPO hype price.

VMware, Inc. (NYSE: VMW) is set to report earnings first of the two companies.  First Call has estimates for the king of virtualization set at $0.22 EPS on $422.3 million in revenues.  Estimates for next quarter are $0.25 EPS on $463.5 million in revenues and fiscal Dec-2008 estimates are $1.08 EPS on $1.99 Billion in revenues. The post-IPO trading range is $41.41 to $125.25.  Shares closed up 6% Friday at $58.47 and the average analyst target on this one has come down to just over $64.00 on last look.  In the current climate, new companies with huge market caps, way above-market multiples, limited operating history, and that have well over half the stock tied up by a parent that could sell out over the next year or two, it is probably safe to assume that the company has to beat estimates to keep everyone pleased. 

Wednesday we’ll get to see earnings out of EMC Corporation (NYSE: EMC). The estimates for the information infrastructure technologies developer from First Call are $0.16 EPS on $3.45 billion in revenues.  Next quarter estimates are $0.18 EPS on $3.57 billion in revenues. Estimates for fiscal Dec-2008 are $0.79 EPS on $14.96 billion in revenues.  Analysts have an average price target north of $20.00, and EMC Corporation’s 52-week trading range is $14.01 to $25.47.

If you will recall, we noted value manager Whitney Tilson's call for the "EMC-stub" where he laid out the scenario that you were essentially buying EMC for under $5.00.  Those numbers will have changed by now, but it is interesting how this is and was available.

Perhaps we'll get to hear EMC discuss its intentions of how long it plans to hold the stock.  The company recently said it wants to hold that indefinitely, but we've heard that song and seen that change before in other similar situations.

Recently, we covered some major issues coming up in virtualization.

Jon C. Ogg
April 20, 2008

Jon Ogg is a producer and editor of the Special Situation newsletter and the "10 Stocks Under $10" weekly newsletter for 247Wallst.com.

Entire Internet & Software Sectors Brace For Google Earnings (GOOG, YHOO, MSFT)

After the close of trading this Thursday, we’ll get to see earnings out of Google Inc. (NASDAQ: GOOG). The estimates for the search engine super-giant from First Call are $4.52 EPS on $3.61 billion in revenues.  Next quarter estimates are $4.64 EPS on $3.8 billion in revenues. Estimates for fiscal Dec-2008 are $19.55 EPS on $15.91 billion in revenues.

Analysts have an average price target north of $651.00, although this number has plummeted over the last 60 days as analysts have raced to get to more realistic levels in light of a recession or potential slowdown in ad-spending.   Those old calls for $700, $800, and even $900 Google seem like ancient history.  Over the last 60 days, some of the key firms that have trimmed estimates ahead of earnings or that have gone more cautious for the quarter and into recession are as follows:  Citi, Goldman Sachs, Jefferies, Lehman, Merrill Lynch, Oppenheimer, Piper Jaffray, RBC Capital, Stanford Financial, ThinkEquity, UBS.  So much for that old $750 (or $900) call from Jim Cramer for now.

We won't make any options pricing assumptions until Thursday afternoon, particularly as options are set to expire the next day.  As of Wednesday's close, this looked like options traders were braced for a 4% move in either direction.

These moving averages may be slightly different on Thursday afternoon, although these are just the simple moving averages rather than the exponential moving averages.  The chart on Google is one showing that 50-day moving average has been the king and that level as of Wednesday night was $468.36.  That 200-day moving average is $565.90 or more than 100-points higher and seemingly irrelevant today.  Google has been staying closer to its 20-day moving average of late, and that level was $455.21 on last look.

Frankly, Google doesn't give guidance and management has not said a word about the disappointing numbers on click-thru rates nor on all the other ad metrics.  So far every call has lowered the ad-effectiveness credibility of the ads, but the real results are still somewhat of a mystery because results regarding search and ad-effectiveness vary wildly from source to source.

Yahoo! (NASDAQ: YHOO) was the initial hurdle, but enemy number one at Google is still Microsoft (NASDAQ: MSFT).  Google seems most focused on Microsoft and it is quite possible we'll hear on Thursday if the company wants to keep things as is and not worry about that potential merger or if they are interested in going back on the offensive.  While traders will send the entire Googlesphere numbers downstream to the second and third tiers, these are the two to watch closest.

Google’s 52-week trading range is $412.11 to $747.24 and shares closed up almost 2% on Wednesday at $455.03.

Jon C. Ogg
April 17, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Microsoft (MSFT): Lending Money To Improve Revenue

Microsoft (NASDAQ: MSFT) has come up with a canny way to increase its revenue during a recession. It will loan companies money to buy its software.

Redmond has always had a deft touch in bringing in more sales, and this is yet more proof of the firm's endless inventiveness. According to The Wall Street Journal "With small-business customers finding it harder to finance high-tech purchases, Microsoft Corp. plans to increase the amount it lends them for purchases, by as much as 60%." That would bring the number up to $1.25 billion.

Microsoft earns so much money that even a decent default rate on the loans would not affect its earnings. The company already knows that.

The move raises an interesting question. If Microsoft can open a "bank" for customers, why shouldn't Apple (NASDAQ: AAPL), Cisco (NASDAQ: CSCO), Oracle (NASDAQ: ORCL), and other big tech companies with strong balance sheets do the same thing? The answer is that nothing prevents them from making the same effort.

If a number of hardware and software operations move to give credit to their customers they will be, in effect, be creating "The First National Bank of Software Lending". At first blush, there is nothing wrong with it, But, the precedent of passing capital to customers to buy goods and services which in turn drives up revenue at the lender may not be a terribly good idea. Auditors are likely to question the true value of the sales that the practice brings into P&Ls and how the loans should be handled on the lender's balance sheets.

Lending capital to the customer base may be fair play, but it is a fishy way to drive sales.

Douglas A. McIntyre

Nuance Makes Strategic Acquisition, Partly With O.P.M. (NUAN)

Nuance Communications, Inc. (NASDAQ: NUAN) has announced a dual-pronged deal this morning.  It has signed an agreement to acquire eScription, a provider of computer aided medical transcription technology.

The total consideration for this transaction is approximately $363 million, which is broken down as $340 million in cash and $23 million in Nuance common stock.  It will also include the assumption of vested employee options with a value of roughly $37 million.

With an estimated $7 billion spent on medical transcription in North America annually, this acquisition of eScription is intended to accelerate Nuance's ability to effectively serve the medical transcription industry.  Nuance expects that its combined revenues for on-demand medical transcription and clinical documentation solutions will be between $175 million and $200 million in fiscal 2009.  As far as a direct add, it expects the deal to add $16 million to $18 million in non-GAAP revenue in fiscal 2008 and $63 million and $68 million in fiscal 2009.  This acquisition is expected to be accretive to 2008 non-GAAP EPS by $0.00 to $0.01 and $0.06 to $0.08 non-GAAP EPS in fiscal 2009.

But here is where this gets interesting.  Private equity firm Warburg Pincus will purchase Nuance shares in connection with the transaction.  Warburg Pincus will purchase 5,760,369 shares of Nuance at a price of $17.36 per share for $100 million. It will also purchase a warrant for 3.7 million shares of Nuance with an exercise price of $20.00 per share and a four-year term.

Nuance had $323.7 million cash on its books as of December 31, 2007.  Not including what it would have earned this last quarter yet to be reported, the Warburg Pincus capital infusion will provide enough cushion for the company to continue smooth operations without having to depend on its credit lines or any debt.  It already has almost $1.3 Billion in total liabilities, so this will allow this slight "other people's money" acquisition to not be a burden on its books.

As Nuance is the leader in speech-to-text software solutions, this one has been under review before for our Special Situation Investing Newsletter.

Shares of Nuance are trading up nearly 3% pre-market at $17.96 this morning, and its 52-week trading range is $12.45 to $22.56.

Jon C. Ogg
April 8, 2008

Jon Ogg produces the Special Situation Investing Newsletter.  He can be reached at jonogg@247wallst.com and he does not own securities in the companies he covers.

Microsoft Adds Pressure to Yang & Yahoo! Board (MSFT, YHOO)

Yesterday we noted that Microsoft (NASDAQ: MSFT) may be close to either lowering its bid or taking other actions in its attempt to acquire Yahoo! (NASDAQ: YHOO).  Now the facts are out.  Steve Ballmer sent a letter to the Yahoo! board of directors and discussed the 62% premium offer to Yahoo! January 31, 2008.

Ballmer noted that there has been no meaningful negotiation to conclude an agreement while the public equity markets and overall economic conditions have weakened.  He also noted that public indicators suggest that Yahoo!'s search and page view shares have declined.

Ballmer set the deadline to reach an agreement within the next three weeks, or Microsoft will go hostile and directly go to shareholders.  He will seek to drop change in control procedures, start a proxy contest to elect an alternative slate of directors for the Yahoo! board. and the direct offer to shareholders "will have an undesirable impact on the value"... in short, a lower price will be offered.

You can join our open email distribution list to hear about other mergers, private equity, secondaries, IPO's and more.

If you'd like to read about Steve Ballmer's thoughts on the future of search and advertising, Ballmer recently gave some exclusive comments to 247WallSt.com in an interview on this exact topic.

Stay tuned, this one is about to get interesting.

Jon C. Ogg
April 5, 2008

Jon Ogg produces the Special Situation Investing Newsletter; he does not own securities in the companies he covers.

Next Version Of Microsoft (MSFT) Windows--Next Year

Those PC users who hate Vista will be happy to hear that Microsoft (NASDAQ: MSFT) plans to release its new version of the Windows OS next year.

According to Reuters "The software giant has been aiming to issue more regular updates of the operating system software that powers the majority of the world's personal computers."

The news may be welcome for Microsoft investors. Vista has been criticized for having bugs, working poorly with non-PC hardware like printers, and operating slowly on low-powered computers. Apple (AAPL) has begun to market, with some success, its own OS created for the Mac as an alternative to Vista on PCs.

Microsoft is probably losing some revenue growth and getting a series of black eyes while Vista is its lead product. The solution may be just a few quarters away.

Douglas A. McIntyre

Bad News For Vista: Microsoft (MSFT) Keeps XP

Vista, the new OS from Microsoft (MSFT) was supposed to be so good that every customer and business using Windows would want to upgrade as soon as possible. But, a number of critics of Vista say that it has bugs, does not help PCs work with other machines like printers, and runs badly on lower-powered machines.

Apple (AAPL) has also been aggressively marketing its OS beyond its usual Mac base to see if it can pick-up Microsoft customers. Since a number of software experts like the Apple product better, the approach is probably meeting with some success.

In the face of all of this Microsoft has elected to keep its old OS, Windows XP, alive. According to The Wall Street Journal this is being done to help users of low-powered machines and will keep XP on the market for another two years. That would be about the time that Redmond introduces that OS version that comes after Vista.  Consumers and business would be happy to skip a generation of Microsoft operating system software and take a look at the next product. At least keeping XP offers the chance of stopping customers from leaving altogether.

Give the people what they want, even if it hurts.

Douglas A. McIntyre

After Disappointing Report, Is Lawson Still Potential Merger Bait? (LWSN)

Lawson Software (NASDAQ: LWSN) may be in a strange spot now as the enterprise software and consultant firm issued earnings. 

The company posted earnings of $0.08 EPS on a non-GAAP basis on an 11.3% rise in revenues to $212.9 million, while First Call showed consensus as $0.08 EPS and $217.2 million.  Lawson issued guidance for next quarter at $0.08 to $0.11 EPS on revenues of $225 to $230 million.  This is still sequential growth, but this lurks under the estimates of $0.12 EPS and $230.9 million from First Call.  As far as charges, Lawson reported an additional permanent impairment charge of $8.1 million.  It also reported a temporary impairment charge of $2.1 million to reduce the value of its auction rate securities.

The company is still growing and it isn't an expensive enterprise software and consulting company if you are willing to stick by some longer-term forecasts out to Mid-2009.  But the problem is that this new drop might make the required premium to secure a vote approval too high, assuming the company would even go along with a buyout if it came.

If a buyout offer ever comes for Lawson, it has to be a "friendly" merger.  The company has both a blank-check preferred share provision and a poison pill provision according to Capital IQ.

If you would like to join our open email distribution list, we usually discuss other merger candidates, merger-arb, special financings, and other issues that create special situations.  We have also reviewed this for our weekly "10 Stocks Under $10" newsletter.

Lawson has been public for now more than 5-years and for most of that time it has traded between $5.00 and $10.00 per share.  The company's stock closed up 1% at $8.00 in regular trading today, yet shares are down roughly 8% at $7.30 in after-hours trading.  Its 52-week trading range is $6.94 to $11.39.

Jon C. Ogg
April 3, 2008

Jon Ogg produces the Special Situation Investing Newsletter; he does not own securities in the companies he covers.

Corel Holder Wants To Take It Private (CREL, CAPA)

Corel Corp. (NASDAQ:CREL) has announced today it has received an unsolicited proposal from Corel Holdings, L.P., which is controlled by an affiliate of Vector Capital Corporation, the holder of 69% of Corel's outstanding common shares.

The Vector affiliate has proposed to make an offer to acquire all of Corel's outstanding shares that it currently does not hold at a price of $11.00 cash per share in US Dollars.  We would note that before the stock was halted, shares were trading at $10.80 and the stock has a 52-week trading range of $6.94 to $14.37.  Vector has stipulated that the offer would be conditional upon satisfactory confirmatory due diligence and Corel's existing credit facility remaining in place following the consummation of any transaction, among other things.

Corel's Board of Directors has formed a Special Committee of independent members of the Board consisting of Ian Giffen, Steven Cohen and Daniel Ciporin.  The group will assist in evaluating and responding to the proposal and other related strategic considerations.  Corel said it will not provide further comments at this time but will provide updates as further information becomes available. There is also the pre-packaged statement that there can be no assurance that a transaction will be completed or, if completed, of its terms, price or timing.

We frequently cover such issues around private offerings, management buyouts, private equity and more in our open email distribution list where we preview certain issues that will be in our twice-monthly Special Situation newsletter for our our subscribers.

Corel is a leading developer of graphics productivity and digital media software whose offerings include WordPerfect, CorelDraw, Painter, and more.  We'd also note that Vector Capital recently had attempted to acquire Captaris, Inc. (NASDAQ: CAPA).  That was one we covered as having not gone through today. 

If you look above at the buyout offer versus where this one has traded, it doesn't look like this deal is an assured slam dunk that will be approved.  That answer won't be known until the firm makes a response.

Jon C. Ogg
March 28, 2008

Jon Ogg produces the Special Situation Investing Newsletter and he can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

VMWare (VMW): A Funeral For Virtualization

Virtualization was supposed to be the next big thing in enterprise software. Virtualization allows one computer do the job of multiple computers by sharing the resources of a single machine .The software makes it possible to run multiple operating systems and multiple applications on the same computer at the same time.

Nifty. The champion of the new software is EMC (EMC) spin-off VMWare (VMW). The company had a market cap of $50 billion last October. That is more than half of the current market cap of Oracle (ORCL). But, Oracle's revenue last quarter was over $5.3 billion. In the last reported quarter, VMW's revenue was $412 million, and was growing at 80%.

VMWare's market value has dropped to $18 billion, and it happened, at least in market terms, overnight.

The twenty-four analysts who cover the company still project 50% revenue growth this fiscal year.

VMWare has run into some obvious problems. Microsoft (MSFT) has begun to move aggressively into the market. That could certainly lead to price pressure. Citrix Systems (CTXS) also has some competing products.

Most of those things would not cause a stock to lose 60% of its value.

The problems with virtualization is that it is not the perfect child it has been made out to be with a 180 IQ, excellent manners, and an athletic build. The software, at least according to some sources, is fairy immature and does not do all of the things that the marketing material says its does.

As Enterprise Networks pointed out "there is a danger of this type of solution being seen as "all things to all men," and implemented widely without proper consideration of a number of challenges that can arise. IT managers risk neglecting important tenets and disciplines if a few basics are put in second place in a rush to virtualize.".

A comment by a Gartner analyst was even more damning. Quoted by FierceCIO he said "Wait out the problems with virtualization before fully committing to it. Those problems, which include licensing, support, emerging technologies, cost and the lack of enough good virtualization vendors, are big hurdles."

The most common complaints about virtualization software is that it lacks adequate monitoring and management tools. If so, that would explain some of the sell-off in VMW.

The customers knew there were problems before the shareholders did.

Douglas A. McIntyre

Oracle & Surprisingly Light Revenues (ORCL)

Larry Ellison & Co., a.k.a. Oracle Corp. (NASDAQ: ORCL), is seeing shares hit rather hard in after-hours trading.  Shares closed down 0.6% at $20.94, which was above that 200-day moving average we had cited.

The enterprise software giant posted $0.30 EPS, in-line with First Call estimates of $0.30.  But revenues came in a tad light at $5.35 Billion, under the $5.42 Billion estimate.  Its software revenues also came in at $4.24 Billion as service revenues were $1.11 Billion.  Wall Street wasn't expecting light revenues out of Oracle, particularly with the currency benefits.

That 200-day moving average is probably going to be a resistance level for a while now.  Shares are down almost 8% to $19.29 in after-hours trading.  It's probably a safe bet that analysts either take down target prices tomorrow if they don't issue outright downgrades on "merger integration issues."

Unless Larry Ellison says something major on the earnings conference call, this one is probably range-bound for a while.

Jon C. Ogg
March 26, 2008

Enterprise Companies At Mercy Of Oracle Earnings (ORCL, MSFT, SAP, CSCO)

After today's close we’ll get to see earnings out of Oracle Corp. (NASDAQ: ORCL). The estimates for the enterprise software company from First Call are $0.30 EPS on $5.42 billion in revenues.  Next quarter estimates are $0.44 EPS on $6.74 billion in revenues. Estimates for fiscal May-2008 are $1.27 EPS on $22.12 billion in revenues. Estimates for fiscal May-2009 are $1.45 EPS on $24.64 billion in revenues

Analysts have an average price target north of $25.00.  April-expiration Options have too much time value to be of great indication today, but based upon the pullback seen it looks like options traders are braced for a move of more than $1.20 in either direction

Prior to today's sell-off, shares were getting into near-term overbought territory on most charting techniques.  Shares are down over 1% mid-day at $20.79, and this level is still above its 200-day moving average of $20.52.  Oracle’s 52-week trading range is $17.89 to $23.31.

As Oracle is "all about enterprise spending" we'll be watching Microsoft (NASDAQ: MSFT) and SAP AG (NYSE: SAP) on the software side, and will actually be watching Cisco Systems (NASDAQ: CSCO) IF Larry Ellison makes any huge call on trends changing in broad-based tech spending trends in the enterprise accounts.

Jon C. Ogg
March 26, 2008

Jon Ogg produces the Special Situation Investing Newsletter and can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

24/7 Wall St. Exclusive Interview With Steve Ballmer, CEO Of Microsoft

24/7 Wall St. had a chance to interview Steve Ballmer, CEO of Microsoft (NASDAQ: MSFT) on a few subjects including why some large companies were late to the search business, his view of how the market has traded Microsoft's stock after the Yahoo! (NASDAQ: YHOO) bid, and what happens to Windows and other software products the company markets when more products are delivered directly over the internet.

24/7:  Why did all the large internet companies fail to see the vast market for search when Google (NASDAQ: GOOG) was just starting to do well five years ago? It seemed to have stepped through a very big door without much resistance.

Mr. Ballmer: Five years ago, search was in its infancy.  Even today, it’s an area that still has a lot of room for innovation.  If you look at the number of companies working on search-related technologies today, you see that it’s actually a lot broader than the narrow definition many apply to it. 

Five or ten years from now, search is going to look a lot different than it does today.  The search user experience that we’re accustomed to today—the white box and ten blue links—is going to evolve.  The ability for search engines to really understand human intent is going to advance.  There are opportunities for innovation in vertical search scenarios—shopping, local search, entertainment, etc.  There are opportunities in business search—Some of the work companies like FAST have been doing in this area is pretty amazing.

This is an area where we’re investing to win over the long-term.  If you look at our progress in just the last couple of years, we've really come from nowhere quite quickly, we’re in the game today as an aspirant, and we have a great offering in the latest release of Live Search. 


24/7: The logic of the Microsoft offer to buy Yahoo! seems plain enough. Why does the market seems to reject it by moving Microsoft’s share price down?

Mr. Ballmer: Not really much I can say here, or speculate on the market reaction.  We’ve made the offer, we think it’s a strong offer, and we think it represents very good value to shareholders and customers.


24/7: Can you see a time a decade out where most of Microsoft's software is delivered over the internet and works remotely from your servers? Does that do any damage to the current model of the software being pre-loaded onto PCs?

Mr. Ballmer: It’s not a zero sum game.  We see a world where software and services combine to provide the best of both worlds—the richness of desktop software with the scale and reach of the Internet. In a software+services world, computation and storage will be done both in the cloud and on the client—whether the client is a PC, a TV, a phone, or another device.  Applications that reside on the client will be updated and managed with the Internet as the hub.  Business models will evolve as well, and if you look across all of these changes, we’re positioned very well for that wave.

24/7 :Thanks

Douglas A. McIntyre

Oracle Earnings To Set April Earnings Bias In Software (ORCL, CRM, VMW, MSFT)

On Wednesday afternoon, we’ll get to see earnings out of Oracle Corp. (NASDAQ: ORCL). The estimates for the enterprise software leader from First Call are $0.30 EPS on $5.42 billion in revenues.  Next quarter estimates are $0.44 EPS on $6.74 billion in revenues, and next quarter also marks the fiscal year-end. Estimates for fiscal May-2008 are $1.27 EPS on $22.12 billion in revenues. Estimates for fiscal May-2009 are $1.45 EPS on $24.64 billion in revenues.

Analysts have an average price target north of $25.00, although its 52-week trading range is $17.89 to $23.31.  Up until the first of march, it looked like shares of Oracle were wanting to test their 52-week lows.  Shares have since come up $1.00.  This last rally got shares above the stock over its 50-day and 200-day moving averages, which are $19.85 and $20.50 respectively.

We won't use options for any guide until Wednesday because the volatility has been high and their is now a much longer time value since options expire April 18. 

Perhaps more important than just its earnings and guidance will be how the company affects the rest of the software sector.  For starters, now that VMware (NYSE: VMW) has seen a 50% haircut, many analysts and investors still wonder what Oracle's virtualization plan will really be.  Salesforce.com (NYSE: CRM) has also seen its shares hold up since it last reported, and it is often thought of as "mini-Oracle" in the sector.  Microsoft Corp. (NASDAQ: MSFT) is also the other stock to watch in software as these two are routinely compared in business and enterprise levels.

Jon C. Ogg
March 24, 2008

IPO Filing: SolarWinds, Inc. (SWI)

SolarWinds, Inc. has filed to come public via an initial public offering.  It noted an amount in the IPO of up to $250 million in equity sales and has applied for he ticker "SWI" on the New York Stock Exchange.  Lead underwriters are listed as JPMorgan, Goldman Sachs, and Lehman Brothers.  Co-managers are listed as UBS and Thomas Weisel Partners.

The company is surprisingly not an alternative energy company like the name might lead you to believe.  It provides powerful enterprise-class network management software designed by network professionals for network professionals. Its offerings range from individual software tools to more comprehensive software products, solve problems faced every day by network professionals and help to enable efficient and effective network management.  Its aim seems be intuitive and easily customizable user interfaces and built-in workflows which can be downloaded directly from its websites. and then can be installed and configured by our end-users in a matter of hours.

Through December 31, 2007, it claims over 50,000 customers within small and mid-size businesses, enterprises (including more than 350 of the Fortune 500 companies), and government entities had purchased one or more of its products.

It also listed its average license transaction in 2007 was less than $6,000, compared to hundreds of thousands of dollars for many competing products.  Its financial performance is listed as follows:

• Revenue of $27.9 million in 2005, operating income of $23.0 million, and Adjusted EBITDA of $23.0 million.
• Revenue of $38.2 million in 2006, operating income of $25.4 million, and Adjusted EBITDA of $27.1 million.
• Revenue of $61.7 million in 2007, operating income of $30.9 million, and Adjusted EBITDA of $35.4 million.

Jon C. Ogg
March 24, 2008

VMware Increases Operations in India (VMW)

VMware, Inc. (NYSE: VMW) has announced that it is opening a new R&D facility in Bangalore.  The leader in virtualization also noted that it plans to double its development team in India to more than 1,000 people over the next 2-year period.  It currently has almost 700 employees in India and has operations underway in Bangalore, Pune, Chennai, Delhi, and Mumbai.

The investment is listed as $100 million in India by 2010 and the new facility in Bangalore is listed as being some 82,000 square feet that will double its Indian engineering group.  VMware has been in India since 2004, and claims more than 300 customers and more than 160 channel partners in India.

Jon C. Ogg
March 24, 2008

Apple (AAPL) Safari Targets Microsoft (MSFT) Windows

According to The Inquirer, Apple (NASDAQ: AAPL) is releasing the latest version of its Safari operating system to Windows users. It may get some of them to switch. Hard to see that the move will go over well with Microsoft (NASDAQ: MSFT).

Douglas A. McIntyre

Adobe Barely Off 52-Week Lows Ahead of Earnings (ADBE)

Tuesday after the close, we’ll get to see earnings out of Adobe Systems Inc. (NASDAQ: ADBE). The estimates from First Call are $0.45 EPS on $875.8 million in revenues.  Adobe frequently offers longer-term guidance compared to many software companies. Next quarter estimates are $0.44 EPS on $874.7 million in revenues. Estimates for fiscal Nov-2008 are $1.82 EPS on $3.57 billion in revenues.

Analysts have an average price target north of $45.00, which is approximately an implied 50% move to current prices.  2008 hasn't been great to Adobe stock as shares were north of $40.00 at the end of 2007.  They were also above $45.00 at the start of November.  Options are not very straightforward, but it appears that options traders are only braced for a move of $0.98 to $1.12 in either direction.  The closest contracts may not even count for 1 million shares traded on a fully leveraged basis.

Adobe Systems’ 52-week trading range is $30.70 to $48.47, so at $31.61 the stock barely sits above its 52-week low.  If Adobe hits its estimates in fiscal NOV-2008, it has a forward P/E of 17.4 based on today's prices.

Jon C. Ogg
March 18, 2008

BMC Acquires BladeLogic For Data Center Automation (BMC, BLOG)

BMC Software (NYSE:BMC) has announced that it will acquire BladeLogic (NASDAQ:BLOG) for $28.00 per share of BladeLogic common stock.  The data center automation company acquisition is valued at $800 million, net of cash acquired.  According to BMC, BladeLogic will add a significant, high-growth revenue stream to BMC, accelerating the company’s long- term growth expectations for revenues, earnings, and cash flow.

As far as what BMC is getting, here is part of it.  BladeLogic has a large installed base of Fortune Global 500 customers:

• 21 of the top 100 global companies,
• 3 of the top 10 aerospace & defense companies,
• 7 of the top 25 commercial and savings banks,
• 3 of the top 5 securities companies,
• 2 of the top 3 entertainment companies,
• 2 of the top 3 general merchandisers,
• 7 of the top 12 pharmaceutical companies,
• and 7 of the top 10 telecommunications companies.

BladeLogic shares were actually up more than 50% from 2008-lows before this deal was announced. BladeLogic closed at $23.61 on Friday, and its 52-week trading range is $14.51 to $31.71.  BMC Software's market cap before any initial dilution from this merger was listed as just under $6.5 Billion.

Jon C. Ogg
March 17, 2008

EA To Make Hostile Bid For Take-Two: Take The Money And Run

Electronic Arts (NASDAQ: EA) is not going to wait any longer for Take-Two (NASDAQ: TTWO) to put off the larger company's $26 a share offer. Take-Two claims it is looking for a better deal,

But, no better deal has come along. In TTWO's latest quarter, the company lost money. Before the EA offer, Take-Two shares traded at $17. There will be no other bid from anyone else. Take-Two is a perfect fit for larger video game firm EA. The combination will allow for large cuts in staff, overhead and marketing costs.

To get what it wants, EA will begin a hostile bid for Take-Two's shares. According to The Wall Street Journal "EA plans a tender offer to acquire all of Take-Two's outstanding shares for $26 each."

Most companies which receive an offer at a huge premium from a larger company in their industry should simply not waste time fighting. The lessons of Dow Jones with the bid from News Corp (NYSE: NWS) and Microsoft's (NASDAQ: MSFT) offer for Yahoo! (NASDAQ: YHOO) tell the same thing. The chance to save money by putting together two operations in the same basic business combined with a price offer way above market almost always leads to the same end. Wall St. quickly understands that it is the best deal in the world.

Douglas A. McIntyre

Microsoft Acquisition Furthers Virtualization Efforts (MSFT, VMW, CTXS)

Microsoft Corp. (NASDAQ: MSFT) has announced its intended acquisition of Kidaro.  This is said to be a leading provider of desktop virtualization solutions for enterprises.

Microsoft noted that combining Kidaro's virtualization with the "Microsoft Desktop Optimization Pack for Software Assurance" suite of desktop management tools will enable IT professionals to optimize desktop infrastructure.  That will be done by providing management capabilities for Virtual PCs, streamlining deployments and easing application compatibility issues.

Currently, VMware (NYSE: VMW) has the pole position in virtualization.  It enjoys that position by a wide margin on the enterprise level today.  It's hard to imagine that VMware's efforts so far to date will fall by the wayside even if Microsoft or others acquire anything and everything tied to virtualization, and VMware currently has a market cap of about $19 Billion even after a more than 50% drop from the post-IPO highs.  Citrix Systems (NASDAQ: CTXS) has made an acquisition of its own in virtualization, and you can read our interview with the CEO of privately held Virtual Iron to see what at least some other industry insiders are thinking.

Financial terms were not disclosed for the Kidaro purchase, and this appears to be an add-on acquisition to help in its existing virtualization efforts.

Jon C. Ogg
March 12, 2008

Google (GOOG) Driven Linux PCs Killed At Wal-Mart (WMT)

Google (NASDAQ:GOOG) launched a PC product loaded with its software and an operating system from open source Linux. The product was being sold in Wal-Mart (NYSE:WMT).

Unfortunately, Wal-Mart customer seem to like Microsoft (NASDAQ: MSFT) Windows or Apple's (NASDAQ: AAPL) Leopard OS. Wal-Mart has booted out the Google product.

TechCrunch quotes a Wal-Mart spokesman as saying "This really wasn’t what our customers were looking for.”

Douglas A. McIntyre

Apple's iPhone Strategy For Business, A Long Journey in the Making (AAPL, RIMM, MSFT, PALM, T)

Apple has determined that the best way to reach and ultimately exceed its goal of selling 10 million iPhones this year is by adding more features and opening up the code and making the system more interoperable with other systems.

Today it has made efforts to become more business-friendly than it is currently.  This is one of the issues that has constantly been brought up by fans and critics alike. Steve Jobs has gone as far as supporting the Microsoft (NASDAQ: MSFT) Exchange program to push email to the iPhone in order to allow iPhone to be more business email oriented.  Apple even gave details of a software toolkit that lets outsiders write applications that can be purchased via the iTunes store.  It appears that much of the software will not be available to developers until June 2008, so don't think that all of your iPhone wishes are going to be instantly met tomorrow or next week.

This is a direct attack in the space dominated by Research-in-Motion (NASDAQ: RIMM) and that which was part of the Palm (NASDAQ: PALM) space. The truth is that this can impact R-I-M, and almost anything can impact Palm since they have been losing out in a field they had a huge jump in.  Research-in-Motion shares are down over 3% to $99.00 today, and Palm shares are down over 3.5% to $6.01 today.

Goldman Sachs Updates Oracle/BEA Targets, Issues Buy on Oracle (ORCL, BEAS)

Oracle Corp. (NASDAQ: ORCL) is being reinstated as a "Buy" rating in new coverage this morning at Goldman Sachs.  The firm notes that with macroeconomic concerns being front and center, shares of the enterprise software giant are down 18% so far in 2008. 

It also notes the forward EPS multiples being a mere 15.8 for 2008 and 12.2 for 2009.  Both multiples are under the industry average by about 20% and are also at a discount to the S&P.  Based on yesterday's close, Goldman Sachs sees a 23% gain opportunity to its target.

With the acquisition of BEA Systems (NASDAQ: BEAS), Goldman Sachs has issued the following metrics for forward years:

• 2008 is $1.26 EPS, same as before;
• 2009 is $1.47 EPS, up from $1.41 before;
• 2010 is $1.63 EPS, up from $1.60 before.

Jon C. Ogg
March 6, 2008

Microsoft (MSFT): Recession Proof?

Microsoft (NASDAQ: MSFT) has not felt the impact of slower spending. Software must be sitting outside the vortex which is dragging the rest of the economy under.

Redmond's CFO says that the company's geogaphic diversity has helped. "We certainly are conscious of the fact we might see some economic slowdown, but overall, our business hasn't been substantially impacted to date," Chris Liddell said according to Reuters. Somewhere over the rainbow things may be getting worse, but Microsoft is at least hinting that its business may continue to grow even in a downturn.

There is some sense sense to it. Vista is still young enough to have legs. PC sales are still expected to grow low double digits worldwide. Companies like Oracle (NASDAQ: ORCL) and SAP (NYSE: SAP) have not indicated that they are being dragged under, so Microsoft's Office and other enterprise sectors may be moving along just fine.

There is, of course, the Xbox 360. No on can weather a recession without one.

Douglas A. McIntyre

As Google (GOOG) Bites, Microsoft (MSFT) Winces

Google's (NASDAQ: GOOG) Apps software, which offers spreadsheets, word processing, and presentation features has signed up 500,000 customers by some accounts. The product is popular because it runs off of Google's servers, saving storage space and processing power on the user's PC. The product can also be accessed from just about everywhere.

Apps competes with many of the functions of Microsoft's (NASDAQ: MSFT) Windows. But, Windows does run directly on the PC where it is downloaded and takes advantage of the machine's memory and chip power.

Microsoft has decided to strike back with its own online, server-side software hoping that it can blunt any edge that Google might develop with Apps. Redmond is building huge server farms to power its products. According to The Wall Street Journal "Microsoft Chairman Bill Gates is expected to announce online services to handle e-mail, calendars, contact lists, video conferencing and other functions for small and medium-size businesses."

While it is not clear that the Google applications products will hurt Microsoft's core Windows franchise, the world's largest software company is not taking any chances.

The question that remains to be answered it whether the online Microsoft applications will have to be sold at a discount to the normal Windows products. If so, Google is effectively weakening its rival by taking away some of the margins in its most important businesses.

No wonder Microsoft wants to buy Yahoo! (NASDAQ: YHOO). Maybe it can bleed Google a little.

Douglas A. McIntyre

Microsoft (MSFT): Vista Price Cuts

No one in Redmond wants to admit this, but Apple's (NASDAQ: AAPL) new Leopard OS may be getting the better of Vista, at least in enough cases to make it hurt. Almost all evidence points to the fact that Mac sales, although still a modest part of the overall market, are growing faster than PC sales.

Word has also leaked out the the specs for Vista were set in a way that lead users to believe that it would work well on low-end machines with weak processing power. Microsoft (NASDAQ: MSFT) knew that, but went ahead with its marketing, perhaps to gain additional sales. The standard may have been dropped to help Intel (NASDAQ: INTC) to hit sales targets

The world's largest software company has decided to drop the prices on the consumer version of Vista. Some of this may be due to pressure from PC companies. As the prices of their machines come down, Vista becomes a bigger portion of the total cost of owning a computer. Firms like Dell (NYSE: DELL) and HP NYSE: HPQ) would like to see that changed so that they can keep unit sales as high as possible.

The net effect of Microsoft's move may be bad for its earnings. It is rare that a drop in price, especially software, does not hurt gross margins. The company may want to help its PC and processor partners, but Vista may simply be lemon.

The best way to get rid of a lemon is to drop the price.

Douglas A. McIntyre

Netezza Ready For Earnings (NZ)

Netezza Corporation (NYSE: NZ) is posting earnings Thursday morning and this will be the first earnings report where the company was public for the entire quarter that doesn't have those IPO charges lumped in with earnings.  Its IPO was in July 2007 and its quarter end is January 2008.

We have First Call estimates at $0.02 EPS on $34.34 million in revenues, and next quarter estimates appear to be $0.00 EPS on $33.3 million in revenues.

The average price target out there still appears to be $18.00, but this stock was hit really hard with the stock market after the market malaise.  Shares closed up some 10% today to $8.95, and the 52-week trading range was $7.02 to $17.57.

The strong CRM earnings numbers, despite high valuations, are to thank for at least some after-hours support.  Stay tuned.

Jon C. Ogg
February 27, 2008

Despite Multiples, Salesforce.com Shares Rise On Raised & In-Line Guidance (CRM)

Salesforce.com (NYSE: CRM) has just posted a more than ten-fold rise in net earnings with $0.06 EPS on a 50% gain in revenues to $216.9 million.  First Call had estimates pegged at $0.04 EPS on $209.2 million in revenues.

The company also gave guidance of $0.06 to $0.07 EPS on $233 to $235 million in revenues versus estimates of $0.06 EPS on $228.5 million in revenues.  Its Fiscal January 2009 guidance is now $0.32 to $0.33 EPS on revenues of $1.03 to $1.035 Billion, while estimates are $0.33 EPS and $1.03 Billion in revenues.  While this is raised guidance, it looks mostly in-line with estimates.

Salesforce.com's paying customers rose approximately 2,900 during the quarter and approximately 11,200 during the year to finish at approximately 41,000.  Net paying subscribers rose to nearly 1.1 million, an increase of more than 450,000 from a year ago.  Deferred revenue was listed as $481 million, up 69% year over year and up 41% from the prior quarter.

Based on closing prices and at the mid-point of guidance, this one now has a forward P/E ratio of 161 and trades at 6-times forward revenues.  As of mid-February, Salesforce short interest was just over 7.36 million shares or almost four days worth of volume.

Salesforce.com traded down 0.2% to $52.62 in normal trading and its 52-week trading range is $37.24 to $65.52.  Shares are currently up more than 3% to $54.40 in after-hours trading.  It looks like investors are willing to pay up for companies that are in-line when many are not, even if valuations are high.

Jon C. Ogg
February 27, 2008

Earnings Surprise of the Week: S1 Corp. (SONE)

S-1 Corp. (NASDAQ: SONE) managed to be perhaps the biggest earnings surprise of the week.  The online platform provider for banking sites reported increased earnings in 2007 with a net income of $19.5 million compared to $17.9 million in 2006. Earnings per share were $0.32 compared to $0.25 in 2006.  The quarter estimates were what drove the stock: its quarter earnings were $0.11 on a GAAP EPS basis and a 6% revenue to $53.4 million.  Its license revenues grew 30%.  For the year it noted that its largest customer actually had a decline of $4.5 million in 2007, but its other customers' revenues grew 11.8%.

According to CEO Johann Dreyer, S-1 Enterprise was licensed by three top U.S. banks and added over 20 Postilion customers in 2007. He stated, “I am very pleased with our performance in 2007. We have turned S1 into a profitable organization that is well positioned for the future." Based on today's move, you can bet he's pleased.  So are his shareholders.

If we would have told you yesterday that an online platform and service provider that sold to banks and other financial institutions was going to do this well in the current climate in the entire financial sector, you would have said we were nuts. 

Before the news, analysts still had an average target north of $9.00. S-1's stock is up 25% today, up to $7.55. The 52-week range is $4.95 to $9.79.

Jon C. Ogg
February 27, 2008

Autodesk Stubs Its Toe (ADSK)

Autodesk Inc. (NASDAQ: ADSK) has posted earnings of $0.52 non-GAAP EPS on revenues of $599.1 million, while First Call had estimates at $0.54 EPS and $581.4 million in revenues.  Unfortunately, the guidance is going to disappoint many since Autodesk isn't usually a "lowering guidance" company.

Net revenue for the first quarter of fiscal 2009 is expected to be in the range of $575 million and $585 million; it is lowering its previous estimate of earnings per diluted share to non-GAAP earnings per diluted share in the range of $0.46 and $0.48. Estimates are $582.6 million and $0.52 respectively.

For fiscal year 2009, Autodesk kept its previously provided revenue guidance range of $2.425 billion and $2.475 billion; but it lowered non-GAAP EPS guidance to a range of $2.15 and $2.25.  Estimates are $2.46 Billion and $2.24 respectively.

Shares closed down 0.5% today at $39.10, and its shares are down nearly 10% at a new 52-week low of $35.25 in after hours trading.  The 52-week trading range id $36.74 to $51.32.  We'd normally point out that shares had already been hit hard, but Wall Street isn't used to lower numbers out of this company.

Jon C. Ogg
February 26, 2008

VMWare's (VMW) Shares Can Fall More As Microsoft (MSFT) Enters The Market

Microsoft (NASDAQ: MSFT) play a cut-throat game in almost every sector the software market it enters and investors at virtualisation software company VMWare (NYSE: VMW) know that. VMW shares have gone from over $125 to about $58, even thought revenue at the company is growing at about 80%.

Microsoft is about to come to market with its own virtualisation product, which helps servers run multiple programs. To try to stay ahead of Redmond, VMWare has cut a deal to ship its software on some servers sold by Dell (NASDAQ: DELL), Hewlett-Packard (NYSE: HPQ), and IBM (NYSE: IBM). According to the FT "By pre-installing its software on the computers that companies use to run billing software, serve up web pages and perform other essential tasks, VMware hopes to gain a distribution advantage."

Microsoft is about to introduce its Windows 2008 server software which could get is a footprint in the virtualisation business fairly quickly. Just because Microsoft is behind does not mean it will in any way fail to push every advantage to dislodge VMW from its leading position in the market.

By bundling its software into its core server product, Microsoft is taking the fight to the enemy. VMW shareholders better be ready to see their shares go much lower.

Douglas A. McIntyre

Electronic Arts (ERTS) Offers $2 Billion For Take-Two (TTWO)

Electronic Arts (NASDAQ: ERTS) has disclosed that it made a $26 all-cash offer for smaller video game publisher Take-Two (NASDAQ: TTWO). The total value of the deal is about $2 billion.

It is a bit odd that shares in Take-Two took off earlier in the week. Early on Wednesday that stock traded for $15.60. By the close on Friday, the shares hit $17.36.

The chairman and CEO of Take-Two recently signed long-term employment contracts. Those were executed on February 15. The offer for the company was made by letter on February 19.

Douglas A. McIntyre

EMC Buys Into Personal Information Management (EMC)

EMC Corporation (NYSE: EMC) has announced it will acquire Seattle-based Pi Corporation.  This is a small merger, but this company is one we have actually had under watch as a development stage operation that could have gone public via an IPO down the road.

Pi is a privately-held developer of software and provider of services for personal information management.  Pi develops software and online services to enable individuals to control how they find, access, share and protect their increasing volumes of digital information; it owns SmartDesktop.  Its products are also in beta as of now. Pi now has roughly 100 engineers located in the U.S., Canada and India.

Pi founder and CEO Paul Maritz, will join EMC's executive management team as President and GM of the newly formed Cloud Infrastructure and Services Division upon completion of the deal.  Financial terms were not disclosed, but the merger is apparently all-cash and will be dilutive by $0.01 to EMC's 2008 GAAP EPS.

This won't be as big as Virtualization was, but this is yet another new avenue of products that we'll all be using in the future.

Jon C. Ogg
February 21, 2008

Microsoft & Interoperability (MSFT)

Microsoft (NASDAQ: MSFT) is implementing four new interoperability principles and corresponding actions across its high-volume business products:

• ensuring open connections;
• promoting data portability;
• enha