1) Everyone quoted is upset about increased expenses and forcasted drop in earnings per share. Does a drop in EPS over the next 14 months make sense when XBox 360 is supposed to be taking off after a slow start, when Windows Vista will becoming out, when Office Live and Windows Live and so forth will be coming out? Surely there will be a spike in increased sales in November-December (XBox 360) and in January-February (Vista, Office). They may not be the run-away hits that MS was used to in the mid-late 90's, but I can't believe that there won't be some substantial increase in sales. The PS3 has gotten terrible press for months (too late, too expensive), so MS should be sitting pretty on the game console front. Why aren't they? While there are stories about companies defecting from Office to OO.o, I have to believe that MS will work very hard to keep their customers. Are things really that bad for them on the Vista and Office fronts? Why are these analysts discounting these issues? Are these sales going to be so pathetic as to be unable to cover $3B in increased costs and not maintain the EPS?

I don't think any of those products are in a posistion to make MS big money this year. All of the estimates I have seen say MS is still taking a per unit loss on the 360. MS may manage to make money on the XBox 360 over the long run because the profit is in the games, but that isn't going to help MS for fiscal 2007.

Nor does it look like Vista or Office will have as much of an effect as you think. Neither looks like they will be a hot retail upgrade. It is going to be more like the XP situation, where people waited till they bought a new computer that came with the new OS installed, plus there is a decided fear that MS may delay one or both.

In so far as MS is going to increase their earnings based on those products, I don't think it is going to happen till fiscal 2008. And their ability to do so at all is looking somewhat questionable. The impression of people that have used the office beta is that it doesn't offer much other then a scrambled interface. Nor has the 360 taken advantage of being first so far, too many people are waiting for the PS3 to see which they want.

And then there is Vista. Vista is a project with the unmistakable stench of disaster. Everybody can see that MS is desperatly pushing to get it out the door before the deadline. MS has been removing features steadily, and the project is years late. You don't have to be a computer person to see that this is a project that has the potential to crash hard.

Jay