Dow Jones 9991.78 +103.30 11:09 am PST, October 27, 2004  NASDAQ 1964.66 +35.87 For info, visit access.smallcapnetwork.com S & P 500 1123.48 +12.39 Change your subscription status here Russell 2000 582.69 +5.08 VOLUME 04: ISSUE 87  Feature: Microsoft Muscle and Spectrum Update. On November 9th, Microsoft (NASDAQ: MSFT) shareholders will doubtless approve the $3 a share special payment and the $30 plus billion four-year stock buyback plan announced in July. But should you own this behemoth? We originally Alerted the readership in March when Mister Softee shares were at $24.90. Currently exceeding $28, the capital gain has been respectable at about 12-13 percent, however, with the regular dividend and special payment due in December; the total return is turning out to be quite satisfactory for the year. By the way, to receive the special payment, investors must be registered shareholders on the November 15 record date. Although the shares go ex-dividend November 17th, I suspect the effect on the share price will be minor. And, while the payment will reduce the cash mountain, in my opinion the stock buy-back will likely be funded by future cash flow. With no debt, MSFT will retain a very significant cash position and, money-machine that it is, will likely replace the special dividend cash reduction in relatively short order, as well. We've oft said that we'd like to see Microsoft's share price break $30. If it gets there, it will be the fourth time in roughly the last calendar year that it's banged up against that resistance level and a convincing breach would signal more bullishness ahead. No matter, you should always have at least a smattering of MSFT in your portfolio. Just because. Earnings projection for fiscal 2005 has reduced slightly since our last update from $1.27 to $1.25. At $28 that evidences a future p/e of 22.4 times. Not expensive relative to others in the sector. Historically, Softee's p/e has ranged from 19 times to over 70 times. As I say, still an interesting stock here. The Linux or Windows debate will likely rage on forever. Apple (NASDAQ: AAPL) remains a minor threat although the shares have done extremely well. While innovation seems to be somewhat lacking at MSFT, it has no trouble barging in on other businesses such as music players and other consumer gadgets. The difference between Microsoft and just about every other competitor is that if it fails to gain decent marketshare, it can re-tool or jettison the product. It's not like it needs the press or the hassles. Servering up world domination One of many product areas it does excel is the small and medium business (SMB) server market. In a recent survey, 86 percent of 500-polled SMB's used Microsoft's small business servers while 11 percent used Linux and 1 percent, Novell. In the latest quarter, MSFT announced that it's Server and Tool Division was up revenue-wise over 80 percent to $701 million. Although Linux is free, MSFT has done an exemplary job convincing customers that full implementation of the open source alternative can actually be more expensive than using Windows products. Ya gotta love free enterprise. Actually, I misspoke regarding innovation. All one has to do is follow the trade press in the Server area to see that--as with most of Microsoft's forays--the innovation comes after it has decided to compete. New blade servers, refinements et al will likely keep the Linux cultists at bay for a decent while. Down for the count or countdown? Be that as it may, it is apparent that Microsoft will continue to prosper, albeit not in the go-go way of years past. For example, although its cash mountain will reduce after the December payouts, it reported that it had added $4 billion in free cash just in the last three months. For doubters, remember that in its formative years, MSFT was virtually the only game in town. Over the last twenty, it has managed to weather and grow through markets and circumstances that could have destroyed it. Truly. But instead of going the way of such luminaries as Coleco--remember the Adam--? MSFT has continually morphed, survived and prospered. Will the future be as robust as the past for the Evil Empire? Ah, no. Will investors make decent returns with MSFT that will likely outpace the markets in the long run? Ah, yes. In spades.   Spectrum Update Although Spectrum Sciences (OTCBB: SPSC), corporately, has been relatively quiet of late, the shares have been appreciating. When we reiterated our Trading Alert on August 5th, the shares were $1.26. Today, there are changing hands at $1.60--a 26 percent return so far. We mentioned that a decisive move through $1.27 would herald a new up-leg. The next resistance level we saw was at $1.55, which was breached this morning. If the shares manage to make some traffic at these levels, the next up-leg could see $1.95. It would likely make sense to raise our previous sell stop to $1.25 from our previous suggestion of $1.05. The target we mentioned previously based on technical observations could be in the $2,25 range. We'll keep an eye on the company's progress and report as necessary.       We Value Your Feedback Got comments, questions or suggestions? Send 'em on over: Editor@smallcapnetwork.com If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 3525 Del Mar Heights Rd #334 San Diego, CA 92130 Unsubscribe Here D I S C L A I M E R: The SmallCap Digest is an independent electronic publication committed to providing our readers with factual information on selected  publicly traded companies. SmallCap Digest is not a licensed investment professional or broker-dealer. 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