More on Bill Gates Doesn't Matter

This from this week's Barron's:

The reaction on Wall Street early Friday to news of Bill Gates' plans to transition out of his daily duties at Microsoft was a bit ho-hum.

After Thursday's closing bell, Gates announced he would immediately leave the chief software architect's position, handing over those duties to Chief Technology Officer Ray Ozzie, and unveiled a two-year timetable to leave his day-to-day role at the world's largest software company.

The stock (MSFT) was down 11 cents at $21.92 as midday neared Friday.

J.P. Morgan maintained an overweight rating on the Dow component following the news, saying it recognizes the stock's prospects have turned into a longer term story now, but that it believes there will only be a modest impact, if any, on operations in the near term.

"Gates' withdrawal from MSFT's operations was widely anticipated and we believe the transition plans which led to [Thursday's] announcement first started back in September 2005 when MSFT reorganized the company into three divisions," J.P. Morgan told its clients.
As for where the stock will go from here, J.P. Morgan said it believes the next important catalysts are the fourth-quarter financial report, due July 20, and an analyst day July 27.

Citigroup had a similar reaction, keeping a hold rating on the stock and a $27 price target.
"Given the two-year transition period and our belief that Gates has been preparing the organization for this through [the] previous reorganization and hiring of Ray Ozzie, we are only slightly concerned about the impact of this announcement," analyst Brent Thill said.
Thill said the beginning of the end of the Gates era at Microsoft may temper morale in the short term but noted that any vacuum created would "give a new generation of leaders a chance to step out of Bill's shadow, evolve new business models, and develop the software and services vision of Windows Live."

Friedman Billings Ramsey also left an outperform rating intact on Microsoft and kept a $32 price target on the shares, but it struck a more bullish note while forecasting just a slightly negative impact on the stock in the near term.

The firm said it sees "business as usual" at Microsoft in the wake of the announcement and looks ahead to the balance of the year, when it expects Microsoft to bring clarity to issues that have held the stock back of late, specifically the lack of a detailed strategy and uncertainty regarding the release of its Vista operating system.

"We are happy to see growth accelerating [from fiscal 2005 through fiscal 2007] and believe the decision to reinvest will cause margins to contract in the short term -- but reach an inflection within a year and resume expansion," Friedman said, adding that it expects the analyst day to shed more light on investment strategy.

The succession news prompted a reiteration of an outperform rating from RBC Capital Markets. The firm, which held its $32 price target static, said it continues to like the risk-reward ratio for Microsoft while the stock is sitting near a four-year low.

"With the stock stuck in neutral for some time, a change such as this may help paint a picture of new beginnings for investors," RBC told clients, adding later in its note, "as the company enters its large multiyear product-release cycle and takes market share in its emerging divisions, we believe Microsoft deserves to trade at a multiple near its peer group."