Microsoft

Well I managed to keep my cash out of the market for over a week. That is pretty good for me. I just find it too boring having a bunch of cash doing nothing when it could be invested, generating excitement for me!

The money all went into Microsoft. I did consider Sun Microsystems for a while as I like buying battered blue chips but their line of server products is suffering from a great amount of competition and I still don't really see how they are going to make money from Java. The whole Java thing has been a massive distraction for Sun and has not benefited shareholders at all.

So why Microsoft?

1) Their share price has gone nowhere for three years but in the meantime they have settled their court cases and grown their MSN initiative. I think the share price is ready for a rise.

2) They are getting into paid search in a big way. This is a huge growth market and Microsoft, Google and Yahoo will all enjoy tapping it.

3) Microsoft's MSN Messenger (instant messaging) product is taking off in a big way and will be a huge source of advertising revenue in the future.

4) Microsoft are trying to get into the mobile phone industry. Their Smartphone operating system has had limited market penetration but Microsoft enjoy being the underdogs.

5) When the Google bubble bursts, money that might have gone into Google will have to go somewhere else, like into Microsoft.

Of course, Microsoft are a huge company, and their share price is not about to double in the next few years. However I think $33 by the end of 2006 is possible, which would be 30% growth from the current price.

The bad bits?

Microsoft have suffered from distractions. They went a bit crazy over the .NET initiative, spending billions on an application run-time environment which still isn't available in Windows by default (I guess it will be in Longhorn, their next Windows operating system due out next year.)

Linux, the free operating system is a worry I guess. But how many consumers / work-places are actually using it? I don't use it at home, mainly because I don't want to spend endless hours trying to get all the hardware to work with it. And a Linux distribution can cost almost as much as an upgrade version of Windows. (Linux can be downloaded free-of-charge but most people pay for a packaged distribution which includes manuals and a user-friendly installation program.)

Linux has had great success as a server operating system, running web servers and email servers etc. However the market share it has won has been at the expense of the Unix companies like Sun and Silicon Graphics. In fact both Microsoft and Linux are merrily gaining market share at the expense of these companies.

So Linux is a worry but Microsoft love competing and they will compete with all their might.

So in summary I am looking for a 30% rise in the MSFT share price over the next 18 months or so as the company is re-rated based on the growth of MSN, the release of the next version of Windows and growth in the Smartphone, cable TV and server products segments.

Alternatively the MSFT share price could do a Vodafone on me and just go nowhere for the next few years!