Microsoft Corporation

Microsoft Corporation (NASDAQ: MSFT) develops, manufactures, licenses and supports a range of software products, including scalable operating systems, server applications, worker productivity applications and software development tools. MSFT is currently the world's largest company measured by market capitalization and is clearly the most dominate player in the PC software industry. About 90% of all PCs in the world run on Microsoft products.

Although information technology spending remains weak, MSFT started fiscal 2003 (began July 1st) on a good note as customers signed up for long-term licensing deals at appealing prices before a July 31st deadline as the company moved to a new licensing program. Demand is good for the company's new operating system, Windows XP, and its suite of applications, Office XP. In addition, its server products are selling well, a good indication that systems based on Intel processors and Microsoft software are taking market share from proprietary UNIX-based systems. Even in this challenging environment, MSFT continues to prove that it stands head and shoulders above its peers with a return on capital of 18.18% and net profit margin of a staggering 30.92%. In addition, MSFT is minimizing its risk levels through a zero-debt policy. Investors will be able to see proof of MSFT's financial management as the company uses its hefty cash balance (about $40B) to make strategic acquisitions and invest heavily in research and development. In fact, MSFT is boosting R&D spending by 20% in 2003 to $5.2 billion.

At The Henssler Financial Group, we believe that Microsoft has a creative and excellent management team that has forward-looking abilities to determine the needs of the future. As the economy recovers and PC sales increase, Microsoft is likely to perform just as well, if not better, than many of the other high-quality blue chip stocks in the S&P. We're convinced that MSFT should be a core technology holding within any well-diversified portfolio.

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