Bored to tears over the Microsoft groupthink...

Maybe I'm just getting crotchety in my old age but I find myself bored to tears over the conventional group think I'm seeing this week regarding Microsoft.  A look at Techmeme yesterday would have you believe that Paul Graham's declarative was somehow enlightening. Graham posited that Microsoft is dead. Wow, that's ground-breaking stuff, I can see why it elicited so many parrots squawking into the fray.

Then, as if that weren't enough, the stock made news today because Goldman Sachs, long the king of Microsoft supporters, removed the company from its America's Conviction List [but maintained its Buy rating].

Listen folks, I understand that Paul Graham is a super smart individual and he was trying to make a point with his missive. But what did he tell us that isn't already considered the status quo? Is there anyone with even a passing interest in the technology market that doesn't recognize Microsoft's challenges?

• Yes, Vista and Outlook 2007 took forever to hit the market
• Yes, Vista has been buggy and uptake hasn't lit the world on fire
• Yes, MSN is struggling while Google thrives and Yahoo! claws back market share
• Yes, open source continues to make headway in the browser, desktop and server environments
• Yes, the Zune appears to be a failed effort at dethroning the iPod
• Yes, the Nintendo Wii is doing well
• Yes, more startups are trying to emulate and/or steer clear of Google than the House that Gates Built

But guess what? THAT IS ALL FULLY UNDERSTOOD. How is any of this new news? The stock has been effectively flat lined for a half decade folks.

If Graham and his mimics really want to write something thought-provoking, why don't we talk about how impressive Microsoft continues to be on so many levels? Or how they might turn sentiment around?

• Hat tip to Dennis Howlett for recognizing that Microsoft's applications customers aren't the dissatisfied bunch the herd would have us believe
• Hat tip to Brad Feld for acknowledging the potential for Sharepoint; and how it's already an amazingly effective service
• Hat tip to Charles Zedlewski for bringing to light some of Graham's most egregious errors
• Hat tip to Larry Dignan for one of the few balanced reactions I read today

You know what I would like to hear about?

• Microsoft's phenomenal returns on equity
• The fact that Microsoft is trading at 17x forward earnings, virtually identical the S&P 500 despite having a more attractive overall financial profile
• The strong reviews on the functional improvements in the Office 2007 suite
• The strength of the XBox 360 [which is the real PS3 killer, not the Wii] and the profit leverage that comes in the next few years as the software/hardware ratio skews away from consoles
• The success of BizTalk and SQL server
• The fact that Microsoft is forecast to generate more than $19 BILLION in operating cash flow this fiscal year [by Goldman Sach's own model]
• That Microsoft has been at the forefront of technology companies in finding ways to return incremental cash flows to shareholders [e.g., huge cash dividend, quarterly dividends, massive buyback]
• The fact that large cap fund managers are underweight Microsoft [hint: you generally don't outperform by owning the stocks they're already overweight]
• That Microsoft's mobile and embedded group will more than double to $575mm+ this fiscal year from 2005 levels
• The launches of Longhorn and Katmai

If people want to draw a critical eye toward Microsoft, more power to them. I've taken the company to task plenty of times. But let's not praise someone for effectively telling us what an astute observer has known for years. Let's recognize that despite plenty of challenges and more uncertainty than we shareholders would care for, Microsoft remains the financial envy of virtually every technology firm and has a deeper technical and operational bench than all but a handful of the world's leading organizations.

Beware "Group Think" when it comes to large cap technology investments

• You know when the best time to build a position in HP was? When the world hated it, and no one knew if Hurd had the chops to turn around the situation he inherited from Carly Fiorina.

• You know when the best time to build a position in Apple was? When the iPod just launched and there were dozens of articles about how the music download business wasn't large enough to move the dial for Apple proper.

I'm not going to tell you Microsoft is a great investment; that's not my place. Nor am I going to pretend the company doesn't have its share of challenges. A disappointing quarter or two this year could easily send the stock back to its mid-2006 lows. But folks, please, please, please try to look beyond the rhetoric that often permeates the blogosphere.

Note: This is not a recommendation to buy or sell Apple, Google, Hewlett Packard, Microsoft, Nintendo, Yahoo! or any other security, but is merely a personal analysis to foster discussion for informational purposes only. At the time of this writing, I and/or funds I maintain discretionary control over, maintained long equity positions in MSFT, NTDOY and YHOO but did not maintain a position (long or short) in AAPL, GOOG or HPQ . We also may, at times, carry derivative options on underlying positions as a hedge.

group think paul graham microsoft msft parrots investing tech woodrow enterprise+irregulars