Abstract: Microsoft ended the fiscal year through June 30, 2006 with revenue of $44.28 billion, an 11% increase over the prior year. Driven by new products such as SQL Server 2006 and Visual Studio 2005, other server and tools products, xBox 360, and double-digit bookings growth in the core business, revenue is now running at an almost $50 billion runrate. However remember that the company's quarterly pattern is very seasonal and FY 2007 is very dependent on notoriously late new product release availability (e.g., Christmas sales for some PC lines will be very dependent on how Vista GA is handled). The major Microsoft IT Investment Research Finding is that the Microsoft's FY 2007 outlook is less than secure. In addition to the precarious dependence of its own delivery history, Microsoft is also facing a possible overall IT market slowdown and its major customer, Dell (10% of Microsoft revenue) is having problems as well.

Another factor for investors to consider (Microsoft IT Investment Research Finding 2) is Microsoft's legal troubles. As we find out later, even Korea is piling on, following behind the European Union's (EU) inexplicable June finding, former Massachusetts politician Thomas Reilly, the former Massachusetts CIO, and so forth.  In my opinion, Microsoft merely looks at all of these fines and settlements as a cost of doing business but if the drumbeat continues, the legal issues could affect market dynamics.  Until now, the competitors that initiated all the investigations and allegations have not tended to use them in any organized manner in sales and marketing (settling instead to settle for a fat fee) but that could change, especially outside the United States.  Microsoft on the other hand inexplicably to me has chosen not to fight back.  This too could change and could be one of the catalysts of the market slowdown (as measured by revenue) mentioned above.

"25 IT Investment Research Findings You Need to Know about Microsoft" reviews all of the key sections from Microsoft's August 25, 2006 10K SEC filing in detail and provides both

• Technical explanations that I think investors will find helpful
• Opinionated analysis, where warranted, that investors may find actionable.

The two leading Microsoft IT Investment Research Findings mentioned above are explained in more detail along with 23 others.

Methodology

IT Investment Research urges you to read a company's SEC and like material in detail if you are considering investing in any information technology (IT) company including Microsoft. Reading SEC and like documentation has two advantages:

• First, it is the most accurate description of the opportunity and risk (guys are going to jail for lying in these filings and like material so most executives are going to great length to ensure accuracy)
• Second, the documentation is very complete in terms of describing both the financial and technology aspects of an investment opportunity.

However the detail is technically complicated for many investors.  The purpose of this analysis is to explain the most relevant technical aspects of the investment opportunity in terms investors can better understand. This deliverable also explains the technical statements' relevance to the other information provided in the SEC and like documentation.

My analysis is NOT investment advice nor does it attempt to explain the financial aspects of the investment (although some revenue claims are explained in order to put the IT investment opportunity in context).