>Microsoft Corporation (RELIANCE MONEY)

CORPORATE OVERVIEW: Microsoft is the world's largest software product company, primarily due to its dominant position in operating systems, which runs on over 90 percent of all PCs currently in use and business productivity applications, where its Office productivity suite has over 400 million users. The combination of these two strongholds provides MSFT with a strong barrier to entry for competitors, in our opinion. With MSFT generating over $1 billion every month in free cash flow, it had $23.7 billion in cash and investments as of June 2008, despite having paid out more than $116 billion for dividends and share buybacks from FY 04 to FY 08 (Jun.).

Highlights

● We see total revenues rising by 0.1 percent in FY 09 (Jun.), compared to the 18 percent growth achieved in FY 08. Our forecast of flat revenues reflects our view of a severe economic recession. We expect client revenue to decrease 8.3 percent, based on our forecast of 1 percent growth in worldwide PC unit shipments in 2009 negated by increased pricing pressure due to lower selling prices in emerging markets.

● While we estimate 2 percent decline of overall corporate IT spending in 2009, we project that
server and tools revenue will raise 9 percent and Microsoft Business division 4 percent because of gain in market share in these businesses. We estimate Entertainment and Devices division (EDD) revenue will fall 3.5 percent on weak consumer spending and lower Xbox prices.

● We estimate an EPS of $1.72 for FY 09, compared to $1.87 in FY 08, reflecting lower operating
margins amid a difficult sales environment.

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