From The Motley Fool, dated July 12:

[link|http://www.fool.com/news/foolplate/2001/foolplate010712.htm|Microsoft Warns, Extends Olive Branch]

Microsoft's good news/bad news warning
Microsoft also gave a preview of its second-quarter earnings last night, and the news was mixed. Judging by how the stock market is reacting to the news -- its shares were up nearly 7% at this writing -- clearly investors are keying on the good news instead of the bad.

The good news is that fiscal fourth-quarter (second calendar quarter) revenues are expected to be in the range of $6.5 billion to $6.6 billion, up from previous guidance of $6.3 billion to $6.5 billion. This is also up about 12% from last year's quarter, when Microsoft brought in $5.8 billion. That's the good news.

The bad news is that Microsoft has not escaped damage from the dot-com and telecom meltdown. The company will take a whopping $2.6 billion charge to write down the value of some of its investments, including, among others, its stakes in AT&T (NYSE: T), Winstar Communications, USInternetworking (Nasdaq: USIX), and Gilat Satellite Networks (Nasdaq: GILTF). The write-downs will reduce Microsoft's earnings per share to roughly a penny for the quarter.

Though the greater-than-expected revenue is certainly something to cheer about, Microsoft's investment losses are nothing to ignore, especially since investment gains have positively figured into Microsoft's earnings in the past. Just because the company is getting rid of the carnage in one swoop instead of over time should not belittle the fact that the company did, in fact, destroy shareholder value by making some questionable investments. Why Wall Street habitually glosses over and forgives one-time charges is beyond me.

I think it's yet another indication of how MS can cook its books. The accounting rules really should be tightened to prevent abuses like MS seems to continually do...

Cheers,
Scott.