February 12, 2012 NASDAQ: MSFT

MICROSOFT CORP
BUY A+ A AB+ B BC+ HOLD C CBeta 1.01 D+ D DSELL E+ E EF

BUY
52-Week Range $23.65-$30.80

RATING SINCE TARGET PRICE

02/09/2010 $35.54

Annual Dividend Rate $0.80

Annual Dividend Yield 2.59%

Market Capitalization $258.2 Billion Sub-Industry: Systems Software SMA (50)

Price as of 2/9/2012 $30.77

Sector: Technology MSFT BUSINESS DESCRIPTION Microsoft Corporation develops, licenses, and supports a range of software products and services for various computing devices worldwide. STOCK PERFORMANCE (%) 3 Mo. Price Change 17.44 GROWTH (%) Revenues Net Income EPS Last Qtr 4.67 -0.16 1.29 12 Mo. 8.04 14.09 17.44 3 Yr CAGR 5.14 10.84 13.65

Source: S&P 1 Year 2 Years 36

Weekly Price: (US$)

SMA (100)

34 32

1 Yr. 10.01

3 Yr (Ann) 16.54

30 28 26 24 22
Rating History

RETURN ON EQUITY (%) MSFT Q2 2012 36.60 Q2 2011 42.42 Q2 2010 36.71 P/E COMPARISON

BUY Ind Avg 21.66 21.88 22.28 S&P 500 14.77 12.84 3.25
Volume in Millions

600 400 200 0

2010

2011

2012

COMPUSTAT for Price and Volume, TheStreet.com Ratings, Inc. for Rating History

11.15 MSFT EPS ANALYSIS ($)

167.37 Ind Avg

15.54 S&P 500

RECOMMENDATION We rate MICROSOFT CORP (MSFT) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, solid stock price performance, attractive valuation levels and good cash flow from operations. We feel these strengths outweigh the fact that the company has had sub par growth in net income. HIGHLIGHTS MSFT's revenue growth has slightly outpaced the industry average of 0.5%. Since the same quarter one year prior, revenues slightly increased by 4.7%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share. Although MSFT's debt-to-equity ratio of 0.19 is very low, it is currently higher than that of the industry average. Along with this, the company maintains a quick ratio of 2.58, which clearly demonstrates the ability to cover short-term cash needs. The stock has not only risen over the past year, it has done so at a faster pace than the S&P 500, reflecting the earnings growth and other positive factors similar to those we have cited here. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year. Net operating cash flow has increased to $5,862.00 million or 40.03% when compared to the same quarter last year. The firm also exceeded the industry average cash flow growth rate of 23.56%.

Q1 0.40

Q2 0.74

Q3 0.45

Q4 0.51

Q1 0.62

Q2 0.77

Q3 0.61

Q4 0.69

Q1 0.68

2010

2011

NA = not available NM = not meaningful 1 Compustat fiscal year convention is used for all fundamental data items.

This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet.com Ratings nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet.com Ratings, Inc. Copyright(c) 2006-2010. All rights reserved.

Q2 0.78 2012

Report Date: February 12, 2012

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February 12, 2012 NASDAQ: MSFT

MICROSOFT CORP
Sector: Technology Systems Software Source: S&P Annual Dividend Rate $0.80 PEER GROUP ANALYSIS REVENUE GROWTH AND EBITDA MARGIN*
35%

Annual Dividend Yield 2.59%

Beta 1.01

Market Capitalization $258.2 Billion

52-Week Range $23.65-$30.80

Price as of 2/9/2012 $30.77

FTNT
V FA AB OR

INDUSTRY ANALYSIS The US software industry is characterized by growth, innovation and technological advancements. The business remains knowledge intensive and market structure is influenced by ownership of intellectual property. Technology and product innovation shape business models in a rapidly changing environment. The industry can be divided into three main categories: systems software, programming software, and application software. The industry landscape has seen radical change in recent years due to the growth of mass markets for packaged software. Software development has witnessed rapid evolution over the past few decades with projects increasing in size and complexity as the available computer hardware has dramatically improved in both processing speed and storage size.   The number of patents being issued across the industry has recently surged. Ownership of intellectual property is a key driver of growth and the patent system plays a vital role in the development of the industry. However, piracy remains a pressing issue as copyright infringement and illegal reproduction and transfer of licensed software is widespread. The software industry is not immune to the global economy. The return to positive slow growth will positively impact all industries and enhance new investments, which could bolster demand for services and add to sales growth in the upcoming quarters. The need to lower costs has triggered global capabilities to evolve in China and India. India, for instance, has emerged as the number two software talent pool worldwide, capturing more than a quarter of the global outsourcing market. M&A outlook is expected to be sluggish due to the tight credit environment. The industry is currently positioned favorably going forward. PEER GROUP: Software Ticker MSFT RHT BMC MCRS FTNT ROVI ORCL CA SYMC CHKP VMW Recent Company Name Price ($) MICROSOFT CORP 30.77 RED HAT INC 48.78 BMC SOFTWARE INC 39.53 MICROS SYSTEMS INC 52.44 FORTINET INC 26.22 ROVI CORP 34.24 ORACLE CORP 28.89 CA INC 27.13 SYMANTEC CORP 18.02 CHECK POINT SOFTWARE TECHN 58.60 VMWARE INC 95.28 Market Cap ($M) 258,184 9,421 6,492 4,191 4,039 3,774 145,196 13,176 13,145 12,165 11,778 Price/ Earnings 11.15 66.82 15.44 27.75 68.10 51.10 15.87 14.83 17.50 22.98 57.05 Net Sales TTM ($M) 72,052.00 1,080.89 2,169.50 1,054.29 433.58 691.17 36,704.00 4,754.00 6,722.00 1,246.99 3,767.10 Net Income TTM ($M) 23,468.00 144.19 452.80 155.63 62.49 75.25 9,356.00 928.00 781.00 543.97 723.94
LE

ROVI RHT

Revenue Growth (TTM)

ORCL SYMC
LE AB

CHKP

MCRS
5% 20%

EBITDA Margin (TTM) Companies with higher EBITDA margins and revenue growth rates are outperforming companies with lower EBITDA margins and revenue growth rates. Companies for this scatter plot have a market capitalization between $3.8 Billion and $258.2 Billion. Companies with NA or NM values do not appear.
*EBITDA Earnings Before Interest, Taxes, Depreciation and Amortization.

REVENUE GROWTH AND EARNINGS YIELD

VMW ROVI RHT

UN

FTNT
V FA AB OR

R VO FA R VO FA

BMC

CA MSFT
60%

LE

Revenue Growth (TTM)

CHKP MCRS
LE AB

ORCL SYMC BMC CA MSFT

The peer group comparison is based on Major Systems Software companies of comparable size.

UN
5% 1%

Earnings Yield (TTM) Companies that exhibit both a high earnings yield and high revenue growth are generally more attractive than companies with low revenue growth and low earnings yield. Companies for this scatter plot have revenue growth rates between 8% and 33.5%. Companies with NA or NM values do not appear.

This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet.com Ratings nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet.com Ratings, Inc. Copyright(c) 2006-2010. All rights reserved.

Report Date: February 12, 2012

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February 12, 2012 NASDAQ: MSFT

MICROSOFT CORP
Sector: Technology Systems Software Source: S&P Annual Dividend Rate $0.80 Annual Dividend Yield 2.59% Beta 1.01 Market Capitalization $258.2 Billion 52-Week Range $23.65-$30.80 Price as of 2/9/2012 $30.77

COMPANY DESCRIPTION Microsoft Corporation develops, manufactures, licenses, and supports a range of software products and services for various computing devices worldwide. The company's Windows & Windows Live Division segment offers Windows operating system, Windows Live, and Internet Explorer. It offers Windows operating system, which include Windows 7, Windows Vista, and Windows XP Home, as well as Windows Live suite of applications and Web services. Microsoft's Server and Tools segment provides Windows Server operating systems, Windows Azure, Microsoft SQL Server, SQL Azure, Visual Studio, Silverlight, System Center products, Biz Talk server, Microsoft consulting services, and product support services. This segment also provides enterprise consulting and product support services; and training and certification to developers and information technology professionals, as well as builds standalone and software development lifecycle tools for software architects, developers, testers, and project managers. The company's Online Services Division segment offers online information products, such as Bing, MSN portals, and channels; and an online advertising platform for publishers and advertisers. Microsoft's Microsoft Business Division segment offers Microsoft Office, Microsoft SharePoint, and Microsoft Dynamics ERP and CRM, as well as Microsoft Office Web Apps. The company's Entertainment and Devices Division segment develops, produces, and markets the Xbox 360 platform; PC software games; online games and services; Mediaroom, an Internet protocol television software; Windows Phone and Windows Embedded device platforms; the Zune digital music and entertainment platform; and application software for Apple's Macintosh computers, Microsoft PC hardware products, and other devices. This segment also involves in retail and marketing of packaged versions of the Microsoft Office system and the Windows operating systems. Microsoft was founded in 1975 and is headquartered in Redmond, Washington. MICROSOFT CORP One Microsoft Way Redmond, WA 98052-6399 USA Phone: 425-882-8080 Fax: 425-936-7329 http://www.microsoft.com

STOCK-AT-A-GLANCE Below is a summary of the major fundamental and technical factors we consider when determining our overall recommendation of MSFT shares. It is provided in order to give you a deeper understanding of our rating methodology as well as to paint a more complete picture of a stock's strengths and weaknesses. It is important to note, however, that these factors only tell part of the story. To gain an even more comprehensive understanding of our stance on the stock, these factors must be assessed in combination with the stocks valuation. Please refer to our Valuation section on page 5 for further information. FACTOR SCORE

Growth out of 5 stars weak Measures the growth of both the company's income statement and cash flow. On this factor, MSFT has a growth score better than 90% of the stocks we rate. Total Return out of 5 stars weak Measures the historical price movement of the stock. The stock performance of this company has beaten 70% of the companies we cover. Efficiency out of 5 stars weak Measures the strength and historic growth of a company's return on invested capital. The company has generated more income per dollar of capital than 90% of the companies we review. Price volatility out of 5 stars weak Measures the volatility of the company's stock price historically. The stock is less volatile than 90% of the stocks we monitor. Solvency out of 5 stars weak Measures the solvency of the company based on several ratios. The company is more solvent than 90% of the companies we analyze. Income out of 5 stars weak Measures dividend yield and payouts to shareholders. The company's dividend is higher than 80% of the companies we track. THESTREET.COM RATINGS RESEARCH METHODOLOGY

5.0

strong

4.0

strong

5.0

strong

5.0 5.0 4.5

strong

strong

strong

TheStreet.com Ratings' stock model projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Our Buy, Hold or Sell ratings designate how we expect these stocks to perform against a general benchmark of the equities market and interest rates. While our model is quantitative, it utilizes both subjective and objective elements. For instance, subjective elements include expected equities market returns, future interest rates, implied industry outlook and forecasted company earnings. Objective elements include volatility of past operating revenues, financial strength, and company cash flows. Our model gauges the relationship between risk and reward in several ways, including: the pricing drawdown as compared to potential profit volatility, i.e.how much one is willing to risk in order to earn profits; the level of acceptable volatility for highly performing stocks; the current valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's valuation as compared to projected earnings growth; and the financial strength of the underlying company as compared to its stock's performance. These and many more derived observations are then combined, ranked, weighted, and scenario-tested to create a more complete analysis. The result is a systematic and disciplined method of selecting stocks.

This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet.com Ratings nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet.com Ratings, Inc. Copyright(c) 2006-2010. All rights reserved.

Report Date: February 12, 2012

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February 12, 2012 NASDAQ: MSFT

MICROSOFT CORP
Sector: Technology Systems Software Source: S&P Annual Dividend Rate $0.80 Annual Dividend Yield 2.59% Beta 1.01 Market Capitalization $258.2 Billion 52-Week Range $23.65-$30.80 Price as of 2/9/2012 $30.77

Consensus EPS Estimates ($)

FINANCIAL ANALYSIS MICROSOFT CORP's gross profit margin for the second quarter of its fiscal year 2012 is essentially unchanged when compared to the same period a year ago. Even though sales increased, the net income has decreased. MICROSOFT CORP is extremely liquid. Currently, the Quick Ratio is 2.58 which clearly shows the ability to cover any short-term cash needs. MSFT managed to increase the liquidity from the same period a year ago, despite already having very strong liquidity to begin with. This would indicate improved cash flow. At the same time, stockholders' equity ("net worth") has greatly increased by 32.26% from the same quarter last year. Overall, the key liquidity measurements indicate that the company is very unlikely to face financial difficulties in the near future.

0.57 Q3 FY12

2.68 E 2012(E)

3.02 E 2013(E)

INCOME STATEMENT Net Sales ($mil) EBITDA ($mil) EBIT ($mil) Net Income ($mil) BALANCE SHEET Cash & Equiv. ($mil) Total Assets ($mil) Total Debt ($mil) Equity ($mil) PROFITABILITY Gross Profit Margin EBITDA Margin Operating Margin Sales Turnover Return on Assets Return on Equity DEBT Current Ratio Debt/Capital Interest Expense Interest Coverage SHARE DATA Shares outstanding (mil) Div / share EPS Book value / share Institutional Own % Avg Daily Volume Q2 FY12 8,382 0.20 0.78 7.65 NA 54,605,389 Q2 FY11 8,403 0.16 0.77 5.77 NA 58,010,237 Q2 FY12 2.86 0.16 95.00 84.15 Q2 FY11 2.45 0.17 72.00 113.40 Q2 FY12 76.25% 41.52% 38.28% 0.64 20.91% 36.60% Q2 FY11 79.10% 44.24% 40.92% 0.72 22.28% 42.42% Q2 FY12 51,736.00 112,243.00 11,932.00 64,121.00 Q2 FY11 41,252.00 92,306.00 9,671.00 48,481.00 Q2 FY12 20,885.00 8,672.00 7,994.00 6,624.00 Q2 FY11 19,953.00 8,828.00 8,165.00 6,634.00

2 Sum of quarterly figures may not match annual estimates due to use of median consensus estimates.

This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet.com Ratings nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet.com Ratings, Inc. Copyright(c) 2006-2010. All rights reserved.

Report Date: February 12, 2012

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February 12, 2012 NASDAQ: MSFT

MICROSOFT CORP
Sector: Technology Systems Software Source: S&P Annual Dividend Rate $0.80 Annual Dividend Yield 2.59% Beta 1.01 Market Capitalization $258.2 Billion 52-Week Range $23.65-$30.80 Price as of 2/9/2012 $30.77

RATINGS HISTORY Our rating for MICROSOFT CORP has not changed since 6/8/2009. As of 2/9/2012, the stock was trading at a price of $30.77 which is .1% below its 52-week high of $30.80 and 30.1% above its 52-week low of $23.65.
2 Year Chart

VALUATION BUY. The current P/E ratio indicates a significant discount compared to an average of 167.37 for the Software industry and a discount compared to the S&P 500 average of 15.54. To use another comparison, its price-to-book ratio of 4.02 indicates a significant premium versus the S&P 500 average of 2.17 and a significant discount versus the industry average of 5.85. The price-to-sales ratio is well above the S&P 500 average, but well below the industry average. Upon assessment of these and other key valuation criteria, MICROSOFT CORP proves to trade at a discount to investment alternatives within the industry. Price/Earnings

BUY: $28.01

$33

Price/CashFlow

$30 $28 $25 2010 2011

premium

discount

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discount

MSFT 11.15 Peers 167.37 Discount. A lower P/E ratio than its peers can signify a less expensive stock or lower growth expectations. MSFT is trading at a significant discount to its peers. Price/Projected Earnings

MSFT 8.89 Peers 15.49 Discount. The P/CF ratio, a stocks price divided by the company's cash flow from operations, is useful for comparing companies with different capital requirements or financing structures. MSFT is trading at a significant discount to its peers. Price to Earnings/Growth

MOST RECENT RATINGS CHANGES Date Price Action 2/9/10 $28.01 No Change

premium

discount

premium

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From Buy

To Buy

Price reflects the closing price as of the date listed, if available

RATINGS DEFINITIONS & DISTRIBUTION OF THESTREET.COM RATINGS

MSFT 10.19 Peers 21.12 Discount. A lower price-to-projected earnings ratio than its peers can signify a less expensive stock or lower future growth expectations. MSFT is trading at a significant discount to its peers. Price/Book

MSFT NM Peers 1.96 Neutral. The PEG ratio is the stocks P/E divided by the consensus estimate of long-term earnings growth. Faster growth can justify higher price multiples. MSFT's negative PEG ratio makes this valuation measure meaningless. Earnings Growth

1
lower

5
higher

41.78% Buy - We believe that this stock has the opportunity to appreciate and produce a total return of more than 10% over the next 12 months. 31.55% Hold - We do not believe this stock offers conclusive evidence to warrant the purchase or sale of shares at this time and that its likelihood of positive total return is roughly in balance with the risk of loss. 26.67% Sell - We believe that this stock is likely to decline by more than 10% over the next 12 months, with the risk involved too great to compensate for any possible returns.

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discount

MSFT 4.02 Peers 5.85 Discount. A lower price-to-book ratio makes a stock more attractive to investors seeking stocks with lower market values per dollar of equity on the balance sheet. MSFT is trading at a significant discount to its peers. Price/Sales

MSFT 17.44 Peers 39.39 Lower. Elevated earnings growth rates can lead to capital appreciation and justify higher price-to-earnings ratios. However, MSFT is expected to significantly trail its peers on the basis of its earnings growth rate. Sales Growth

1
lower

5
higher

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TheStreet.com Ratings, Inc. 262 Washington Street, 4th Floor Boston, MA 02108 www.thestreet.com
Research Contact: 617-531-9717 Sales Contact: 866-321-8726

MSFT 3.58 Peers 90.96 Discount. In the absence of P/E and P/B multiples, the price-to-sales ratio can display the value investors are placing on each dollar of sales. MSFT is trading at a significant discount to its industry on this measurement.
DISCLAIMER:

MSFT 8.04 Peers 14.34 Lower. A sales growth rate that trails the industry implies that a company is losing market share. MSFT significantly trails its peers on the basis of sales growth

The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but TheStreet.com Ratings, Inc. can not guarantee its accuracy and completeness, and that of the opinions based thereon. Data is provided via the COMPUSTAT Xpressfeed product from Standard &Poors, a division of The McGraw-Hill Companies, Inc., as well as other third-party data providers. TheStreet.com Ratings, Inc. is a wholly owned subsidiary of TheStreet.com, Inc. which is a publisher and has registered as an investment adviser with the U.S. Securities and Exchange Commission. This research report contains opinions and is provided for informational purposes only. You should not rely solely upon the research herein for purposes of transacting securities or other investments, and you are encouraged to conduct your own research and due diligence, and to seek the advice of a qualified securities professional, before you make any investment. None of the information contained in this report constitutes, or is intended to constitute a recommendation by TheStreet.com Ratings, Inc. of any particular security or trading strategy or a determination by TheStreet.com Ratings, Inc. that any security or trading strategy is suitable for any specific person. To the extent any of the information contained herein may be deemed to be investment advice, such information is impersonal and not tailored to the investment needs of any specific person.

This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither TheStreet.com Ratings nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of TheStreet.com Ratings, Inc. Copyright(c) 2006-2010. All rights reserved.

Report Date: February 12, 2012

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