Friday, April 28, 2006

Microsoft Market Value Falls by More than $30 Billion

By: Richard Waters in San Francisco
Financial Times
April 28 2006

This Thursday Microsoft’s stock dropped 11 percent to $ 24.25. This fall in market value came shortly after Microsoft announced a new plan to reinvest some of its profits into new markets and into the continuing marketing of its online service search engine, Microsoft, which has been publicly trying to increase the market of since last summer, wants to jumpstart its online business, which holds Google and Yahoo as its main competitors. Microsoft also plans to maintain a lead over Sony in the videogame business; Sony plans to introduce a new version of PlayStation later this year.

On a positive note, Microsoft seems to be emerging from a five year period of struggling, which followed a period of immense growth in the 1990s. Wall Street looked forward to a period of steadily rising profits as a result of the upcoming release of Windows Vista, a range of new products, and increasing sales. However, stock prices declined when Microsoft announced its plan to recycle of profits and new increase spending. Microsoft plans to add between $2 and $2.5 billion to its operating costs in the next fiscal year. The increase in spending will be spread across new products, but analysts see this increase as an attempt to catch up with Google and Yahoo in the online search engine business.

Microsoft forecasts an increase in earnings per share of only 8.5 percent, which is half the projected rise of 16 percent. This new change in direction, a.k.a., the increase in spending, was announced by Microsoft’s CFO, Chris Liddell, who added that details would not be available until an analyst’s meeting at the end of July. Overall, Microsoft’s earnings show that the MSN business overall was shrinking and its search advertising business was up only 7 percent, which is far below Google and Yahoo.

1) What does the future hold for, given that Google and Yahoo do not show any signs of slowing down in the future?
2) How, at all, will the new product releases, including Microsoft Vista, affect the market for

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