In his Next Inning, tech expert Paul McWilliams gives Microsoft Corp. (NASDAQ: MSFT) credit for a strong quarter. But the real value, he says, is in Intel Corp. (NASDAQ: INTC).
"The big news among recent earnings reports has been the bang up quarter from Microsoft. To a great extent, this was a wake up call for Wall Street and more evidence that the strength I have been expecting in the PC sector during the second half is real.
"However, rather than giving Intel a meaningful boost, the optimism Wall Street provided the number one semiconductor producer in the world was token at best; instead, the focus was on MSFT's quarter, which in fact did show the highest calendar Q3 growth the company has seen since 1999.
"While I don't want to take anything away from MSFT or distract readers from what I see as a strong second half for PC's, I do want to share one of the reasons why MSFT's results were so strong: in the 10-K. MSFT tells us that the company recognizes 100% of its Vista revenue upon shipment versus reserving a portion of revenue as it did for all prior operating systems sales to be taken over time.
"Since MSFT was not shipping Vista last year at this time, the message here is that the company got an automatic boost in the revenues from its leading operating system due to the change in recognition policy.
"However, please don't take this as meaning MSFT wouldn't have had a great quarter if it was using its old recognition policy . It would have still been great, just not quite the blow out that set Wall Street on its ear.
"The other point to this story that is interesting is that INTC had an equally impressive quarter, but due to rumors that there is excess inventory in the supply channel, even though INTC very clearly stated there wasn't, the price movement for INTC has been tepid when compared to what we've seen from MSFT.
"The reason this is interesting is that MSFT recognizes its revenue upon shipment and if there is a build up of finished PC's in the channel that would affect INTC, it would affect MSFT too. Oh well, so much for logic. INTC remains as one of my favorite mega-cap tech stocks for the next year; Wall Street will catch on eventually."
Each day, Steven Halpern's TheStockAdvisors.com features the latest investment commentary and favorite stocks of the nation's leading financial newsletter advisors.
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