Predicting Microsoft's Earnings

The way today's high visibility analyst asks "what will next year's MSFT's earnings be"

from Street Life, 1/17/03 Bethany McLean

IT'S TRAVELING AROUND THE STREET: I'm talking about a transcript of Mary Meeker's meandering question on the Microsoft call. "Thanks a lot. John, this is kind of a multi-part question, but there's been a fair amount of discussion about this '04 in the call. Can you isolate the biggest variables revenue for fiscal '04 due to the economy, the PC growth and how the other revenue falls off and how that plays out?

The unearned revenue has a fair amount of predictability, at least we know what it was in '03; the economy is what it is. Can you spend a little bit of time talking about PC unit growth? We've watched the PC industry for the last 20 years -- you know there's a certain inflexion at the point that occurs when the new operating system comes out, as you are right now with Windows XP. You know, what the average lifecycle is for PCs, and Bill addressed the CES last week, called this the new decade, the death Tal (?) decade. You're looking at installed bases with digital cameras combined with the age of PCs in the corporate marketplace, almost in my opinion, the worst -- the upgrade cycle hasn't occurred, which typically would have occurred by now, in large part because of the economy. One could almost argue the worse PCs upgrade cycle is -- the better the opportunity there is for an upgrade cycle to happen sometime in fiscal '04. But your thoughts on looking out 12 to 18 months for the potential to get some either PC upgrade cycle or more of a PC operating system upgrade cycle and how that may play out for fiscal '04 is part of the question. And the other part, the revenue growth rate that is we have, that are out for fiscal '04 seems to be in line with the thinking. So far. Any thoughts on that as a benchmark out there, and whether operating expense growth will grow at a rate higher or lower? Thanks a lot." [Thanks to Julie Creswell.]