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Wed, 11 Jun 2008 17:07:00 +0000Warren Buffett is quoted saying that his favorite holding period for a stock is "forever". I'm not ready to go quite that far - and in practice neither does he - but I do subscribe to a long term investing philosophy generally. For example, I bought my first MSFT shares back in the early 90's. Like most holders that decade, I did very well. Then came this one, which has been an absolute disaster. It's sobering to realize that during Ballmer's term as CEO, MSFT has underperformed almost all of its top tech peers (including AAPL, IBM, HPQ, SAP, INTC, CSCO, SYMC, NOK, ORCL, ADBE, RIMM, QCOM, Ebay, and AMZN), and badly lagged the major averages. We may even see our third plunge to test the 2000 lows during his watch. Unbelievable. There may be another major technology CEO with an equivalent or worse track record who is still in power, but a name doesn't come readily to mind. Indeed, it’s instructive to note the four companies who didn’t make my list above: DELL, YHOO, Sony and Sun. In other words, four well-publicized flameouts/turnaround stories (depending on your perspective), all of which have new CEOs. Go figure. That performance record would be embarrassing enough on its own, but it comes in spite of going through an unprecedented amount of our cash on buybacks (nearly $43 billion worth in just the past three fiscal years) and other schemes that were supposed to drive the stock. It's also despite spending more on R&D than virtually anyone in the industry, and more than GOOG and AAPL combined (nearly $20 billion in the past three fiscal years alone). Meanwhile MSFT's senior leadership have collectively been paid billions over this period, while leading the industry in insider selling every year (net of purchases, almost 350 million shares sold over just the past 5 years). You are expected to be patient and wait for returns over the "long term" (still undefined, but has already exceeded 10 years - think Jim Carrey in Ace Ventura and “If I am not back in 5 minutes….just wait longer”.), but they want their return up front. Against that backdrop, it should come as no surprise that a shareholder was recently driven to write about "Microsoft - A Decade of Gross Corporate Negligence and Destroyed Shareholder Value." It’s a good read, and kudos to Bishop for publishing it – that probably didn’t earn him any brownie points with management. FakeSteveJobs (aka Dan Lyons of Forbes) also said something worth reading here: There's something really scary in the voices here. It's in the tone. You know what I'm hearing? It's disgust. Nobody comes out and says it, but these guys are fed up with Microsoft. They're not even angry. They're just fed up. They've had it. They stuck by the company during the DOJ trial and the antitrust mess, because hey, what investor doesn't love a monopoly. The guys on Wall Street don't care if you lie, or cheat, or bully your rivals -- as long as you're winning, and making money, and as long as the stock keeps going up. What they won't stand for is fuck-ups. Incompetence. Mistakes. And the Borg has been nothing but fuck-ups for what -- three years? Listening to these investor dudes talk I'm reminded of a time in the late 1980s when Wall Street guys began ranting about Digital Equipment Corp. For years DEC had been their darling. Ken Olsen walked on water. But suddenly Ken Olsen was a doofus, an idiot. The company which once had been so powerful and so admired almost overnight came to be seen as a loser that couldn't adapt and change. His site is offered as humor, obviously, but he often weaves in good insight. That’s an example, imo. Certainly, there has been another major negative sentiment shift since the YHOO offer and the latest quarterly results. I've been a shareholder for a long time and I have never seen the stock as weak as it has been these past months. Down some ~14% more than the market on the year, fifth worst DOW 30 performer YTD, and trading at [just] 14.8x forward earnings. Looking at the chart, t[...]
Thu, 24 Apr 2008 16:51:00 +0000I may or may not be covering this in detail today. To be honest, I'm close to packing it in wrt both MSFT and this blog. However, for those who wandered over here looking for the usual review, expectations are as follows:The Street is looking for revenue of $14.5 billion and EPS of 44 cents. The company’s guidance was for revenue of $14.3 billion to $14.6 billion, with EPS of 43-45 cents.With the YHOO thing still hanging over us, reaction to strong results are likely to be muted. And with GOOG and AAPL having already posted blowout results, anything from MSFT will seem average by comparison - which of course it is. On the other hand, negative results and/or weak guidance will be punished severely. Personally, I expect a strong report given higher than expected PC sales. However, I think guidance will be on the modest side given the declining macro economic picture and MSFT's typical conservatism. So tomorrow, the stock may be $1 or so higher best case, or $1-$2 lower worst case. Then we'll drift along some more until the YHOO thing finally gets resolved. If that's a merger, then the stock will take a hit and be dead money for two more years. And if it's walk away, then maybe the stock goes up $2-$3 until worries about how MSFT can curb GOOG's growth without YHOO take over and drive the price back down $2-$3. In other words, yawn. Results:On first blush it's not great and the stock is off 5% in the after hours session presently. At $14.45 billion, revenue is in the middle (exactly) of company guidance but light versus consensus. Considering how much further the US$ fell during the Q, that's particularly weak. EPS at .47 looks to be a solid beat, but there's some noise there wrt charges and I haven't detailed what was in/out yet. The item that jumps out is that expenses came in very hot. In particular "Cost of revenue" and "General and administrative". As a result, net income fell off a cliff. Again, I haven't detailed what's behind that yet, although a billion of it looks to be accounting for the EC fine. There's a note in the .ppt that says "Operating income" would have been $5.8 billion ex the fine, which would have exceeded company guidance of $5.6-$5.7 billion. Not that investors apparently care about the distinction.Results by segment are as follows (technology guarantee impact making compares difficult): Again looking quickly, Client sucked. And it seems to be not just the technology guarantee impact but also anemic OEM growth. The .ppt brags about the same 140M Vista licenses sold that we've been hearing about for a while now. So clearly there's been no acceleration wrt installed base upgrades either. Surprise! Not. MBD was also weak. I haven't delved further to figure out why. Server put in a strong showing as per usual. Kudos to that group at least. And E&D managed to eke out a paper profit (as long as you ignore intra-group transfers and the convenient "Corporate-level activity" bucket).Guidance for Q4 is $15.5-$15.8 billion. The street was expecting $15.6 billion, so nothing too negative there. But EPS guidance is .45 -.48, whereas consensus was .48. So that's a guide down.Of course, since next fiscal provides lots of time for things to change, to beg forgiveness, or for a YHOO merger to screw up compares enough to make burying a subsequent miss easy, and since having the stock drop too far currently isn't ideal given the pending YHOO merger, the company is able to look past Q4's set back and be unreservedly bullish for FY09:Revenue is expected to be in the range of $66.9 billion to $68.0 billion.Operating income is expected to be in the range of $26.7 billion to $27.4 billion.Diluted earnings per share are expected to be in the range of $2.13 to $2.19.Wall Street analysts were forecasting EPS of $2.00 to $2.20 per share ($2.10 consensus), on revenue of $66.5 billion. Buybacks during the quarter were unsurprisingly light at around $1 billion.Sample media reaction:Microsoft's Revenue, 4Q Outlook Disappoint the Street Microsoft quarter view disappoints, bullish on '09 LIVE ANALYS[...]
Wed, 02 Apr 2008 18:38:00 +0000In the movie Tora! Tora! Tora!, when Japanese Vice-Admiral Isoroku Yamamoto is presented with the news that Pearl Harbor has successfully been attacked, he doesn't gloat. Instead, he shows great prescience and says: I fear all we have done is to awaken a sleeping giant and fill him with a terrible resolve. For several months now, I've been trying to determine whether the increasing successful attacks of competitors are finally waking MSFT up and relighting the fire, or whether the company is just putting more pillows over its head so that it can keep dreaming about the good ol' days of the late 90's - the corporate equivalent of a child's "can't hear you". Support for the latter proposition is nearly endless, and I'll return to that in a bit. In fact, it's so abundant that my willingness to consider an alternate reality is itself ipso facto evidence of possible self-delusion. Holding the stock will do that to you. Nevertheless, there is some support for that view, albeit that it's much harder to come by. Case in point, this ZDNet article by Dana Gardner, who interestingly isn't much of a MSFT fan - which gives it all the more credibility: It’s good news, bad news: Microsoft gets its Internet act together Excerpt: (bolding mine): The Google fear on the business model disruption, the Apple fear on the client disruption, and the Amazon fear on the cloud disruption, seems to be making Microsoft do what anti-trust regulators, Java, open source developers, Linux, Firefox, OpenDocument, IBM/Eclipse, Novell, and a chorus of Microsoft bashers like myself have been trying for many years. And that is ultimately to save Microsoft from itself. Halllalulah on that last one. The piece contains several great links that are also worth a read, including this one by former softie Robert Scoble. Unfortunately, there's the flip side that I mentioned earlier. Let's skip over the usual stuff like an Excel bug, a Word bug to keep that one company, a long-ignored Jet bug, and embarrassing IE performance scores (btw, can someone also tell me why IE - both 7 and 8 - choke on a large number of favorites when Opera, Firefox, and even Safari do not? Or why Safari can come to market with better standards support and a better mobile experience in less time than IE, and - at the risk of answering my own question - why MSFT hasn't ripped the browser out of the OS where it should never have been put in the first place?). I'm not even specifically focused on news of all the drivers that are still problematic for Vista SP1 along with failed install stories. After all, that was true of XP SP2 initially too, and God forbid that MSFT would improve over time - especially when this version of the OS is struggling so visibly. No, the things that really concern me are reports of declining reputation and other branding issues: Microsoft also came out on top when customers were asked to choose which company to rebrand. "It's gone from innovative and bold to stodgy and a follower," said one respondent. "But rebranding is only one step since it really needs a major shift in how it thinks." Or how much additional share the MAC is picking up - here's a further nice quote to ponder on that score: Huberty notes that a recent higher education survey shows Apple’s mind share tracks well ahead of the current market share - 40% of college students plan to buy a Mac, while just 15% actually have one so far. Mary Jo Foley has a timely piece quoting Forrester and saying forget the noise, "Windows still totally and completely rules the enterprise roost". That may be true, but it's a very shortsighted view of things. IMO, if MSFT continues to sit back and let Apple lead technically (or at least from a user experience perspective - the phrase every convert I know uses to describe it is simply "I love it") and clobber the Windows brand from a marketing standpoint, then it's only a matter of time before consumer success for AAPL translates into business success as well. Then you have the recent trend towards low co[...]
Fri, 29 Feb 2008 19:28:00 +0000
Granted, you may not get the "full" experience - though some might argue that the difference will be marginal. However, it will mean another chip sale for INTC. And isn't that all that matters?
Seriously, what an embarrassment. See the story that Todd Bishop broke here:
Additional coverage everywhere else including:
I suppose there's some way to spin this in a positive direction - and no doubt MSFT leadership will try. Here's their first lame attempt:
Throughout this process, Microsoft employees raised concerns and addressed issues with the intent to make this program better for our business partners and valuable for consumers. That's the sort of exchange we want to encourage. And in the end, we believe we succeeded in achieving both objectives.
Unfortunately, the record appears to show that while employees raised the concerns (to their credit), they were overruled by senior leadership. In other words, there was a willful decision to screw over customers and even OEM partners in order to placate INTC. Great judgement call if that's the case.
At least the Sinofsky summation shows there's hope for Windows - and the company more generally - under his leadership.
I'm not a lawyer, but these revelations would appear to be more than sufficient for the plaintiffs to win their pending class action lawsuit. So expect another $500M+ eventual judgement. Which makes the following all the more prescient:
In a February 2006 e-mail, Robin Leonard, a Microsoft employee, wrote that Wal-Mart officials were "extremely disappointed in the fact that the standards were lowered and feel like customer confusion will ensue."
She added later, "Please give this some consideration; it would be a lot less costly to do the right thing for the customer than to spend dollars on the back end trying to fix the problem."
"Do the right thing for the customer". Now there's a concept. So will anyone senior get fired for having seemingly done the wrong thing for customers, thereby damaging perceptions of Microsoft and its most important product in the process? Of course not.
All in all, a nice cap to a rotten week of news and stock action for MSFT.
Sat, 23 Feb 2008 21:34:00 +0000What do you do when you find yourself aboard the USS Caine and unable to locate enough fellow deckhands willing to stage a mutiny? Why, abandon ship of course. And that's what MSFT shareholders have been doing - in droves. I wonder if Ballmer is holed up somewhere right now, in front of the Board of Directors, with a scene like this playing out? Okay, maybe not. Must be my excitement over the upcoming Academy Awards talking. Reality is probably more like Alfred E. Neuman's "What, Me Worry?" anyway. Meanwhile, MSFT shareholders are paying the price - a $73,000,000,000 tab in just the past three months ($85B if you go back to the peak in Oct.). Of course, some of that was the mysterious inability of the stock to hold its rally coming out of the strong earnings report - something that had already gotten my spidey senses tingling and waiting for the inevitable "bad news" shoe to drop. No way anyone knew something was up in advance, right? Like say, YHOO's and MSFT's M&A advisors from Wall Street? But if you want to explain that away as just market related, compare and contrast how HPQ fared in an equally bad environment following their strong report (I'll come back to them later). Then you have the market meltdown itself, which is responsible for a good chunk of the loss. And finally you have the massive fallout from the YHOO deal. A few billion here, another few billion there, $40B+ on top of that, and pretty soon you're talking serious money. Consider the implications, for a moment, that if I left you with just two clues: "MSFT" and "$27.68" (it actually hit $27.20 intraday), I could be talking about 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, or now 2008. That's right, the stock has hit that level at some point during each of those years. How can anyone still be a CEO with a track record like that? Ballmer is like a small child who, having been told not to put their hand on a hot element, continues to do so anyway. Only in this case, it's our hand that repeatedly gets burned. Or - at the risk of belaboring the point and overextending the child analogy - maybe he's like the teenager who wants money for a home recording studio because he decided on a whim that he's the next Ray, or for a boxing ring in the back yard because he's convinced he's the next Rocky, or for a big-ticket plane to park in the driveway because he watched Top Gun and figures he could be the next Maverick. All of which end up going to waste, due to the subsequent half-assed dedication and limited attention span. Funnily, this post was originally going to be about how maybe, just maybe, Microsoft was finally getting past the denial stage it has been in for most of this decade, and starting to acknowledge - and even get serious about attempting to fix - its many obvious problems. Now admittedly, you had to make like Andy Dufresne in The Shawshank Redemption and swim through a river of [MSFT executive and pr] crap to get there - truth still being anathema to current management. But there had been a series of moves recently that struck me as atypical: the YHOO bid - no matter how ill-advised (confirming that MSFT's Online efforts have failed miserably), the Danger acquisition - no matter how costly (acknowledging that Windows Mobile is being clobbered by the iPhone in the consumer space and is now at risk to even stay an also-ran in the business market, despite nearly a decade of investment), Ballmer admitting to having had "fits and starts" in the Xbox business (translation: it has been one ginourmous clusterf$k, which looks to be getting worse not better), several executive departures in areas that are all clearly struggling - dare I say some long overdue executive accountability? (I would even have entertained right-sizing the exec ranks, if it wasn't for the fact that they promptly turned around and minted even more VPs via promotions. Gotta keep that agility-sucking "top 500", er... "top 800", er... "top 1000", 1200?, in tact), a[...]
Mon, 11 Feb 2008 00:28:00 +0000Word over the weekend (from various sources) is that YHOO's Board is set to reject MSFT's bid on Monday: Yahoo Board to Reject Microsoft Bid If true, you have to wonder what YHOO leadership's real intention is here. Could they possibly be even less concerned about their shareholder's welfare than say, our management, and stupid enough to flat out reject an offer this lucrative? I guess it's possible, but they'd better have one hell of a consolation prize waiting behind door #2 for their owners. If it's just a zonk, a massive shareholder lawsuit will soon follow, and the current management and BOD would be well advised to start updating their resumes. If a prize is in the offing, how will it be financed? Outsourcing search ads to GOOG, as has been rumored, doesn't seem sufficient to generate the short-term funds required to pay holders a significant one-time dividend or equivalent. In fact, any hook up with GOOG is going to face a tough time passing regulatory muster. So will YHOO take on debt to do something like that? Sell a partial ownership stake to someone else? Other? Unclear, but interesting. Of course, this could be - and mostly likely is - just a negotiation ploy. YHOO's Board may well be resigned to being MSFT's Valentine in the final analysis, but figure they might as well hold out for chocolates and roses in addition to that $44.6B dinner originally offered (now subsequently devalued as the price of MSFT shares has dropped). If that's the case, common sense would suggest dialing down the "they're trying to steal us" rhetoric - especially in light of a 60% premium to market bid that several pundits have described as "insane", and which MSFT holders liked so much they promptly chopped $40B+ off the company's marketcap. And what's Ballmer's next move upon a formal rejection? Now that he has opened this veritable Pandora's box, in the process destroying that aforementioned MSFT shareholder value, is he going to simply shut the lid and walk away? Sorry folks, early April Fools' joke? While that's likely best for MSFT holders, certainly short-term, it's not likely to enhance his credibility - and he isn't exactly swimming in an abundance to begin with. Will he choose to turn it upside down and shake it instead, bypassing YHOO management altogether and going directly to shareholders - a true hostile takeover that drags on for months? That'll help the stock price. Not! Or will he try to appease the evil spirits, order up those chocolates and roses (and, at the rumored $40 price, dessert wine, a fur stole, a diamond ring, etc.), and just add it to our tab? Capital Research no doubt had something to say about that one - thank God. But I suspect that Ballmer will still bring the offer back up to the at least the original $31 valuation, and will probably go another 10-15% above that. As a sanity check - or more accurately insanity check - if he ends up going all the way to $40, the deal would now be worth ~$53.6B. Not counting the additional billions here or there in advisor fees and other miscellaneous transaction costs, that would result in the originally envisioned (and abusively dilutive) "600M" of newly minted MSFT shares swelling to ~938M+ - or almost a 10% overall dilution. And we didn't even get the chocolates, roses and dinner first... I have a better idea. Let's get someone to see the value in MSFT that Ballmer has kept so well hidden these past 8 years, and offer us a 60% premium. Given Friday's close, that would put us at $45.69 - or just about 20% down from where we were when Ballmer first took over as CEO in '00. Surely someone would like us to be their Valentine? We aren't cheap, but we have redeeming virtues. And we won't be ungrateful and accuse you of trying to "steal" us. Update: It's official, YHOO has rejected the offer as too low: Yahoo Rejects Microsoft Bid, Leaves Room for Further Talks (though they did dial down the rhetoric from that us[...]
Fri, 08 Feb 2008 00:47:00 +00001) Mark Cuban wades in: Why Yahoo should say Yes to MicroSoft (I respect Cuban, but he must not own MSFT shares) 2) Review of various integration scenarios: How To Put Together MicroHoo (#1 role model: HP/Compaq. Um, didn't that one initially screw up so badly that the stock nosedived and the original CEO got the boot? On second thought...) 3) Others, besides YHOO's owners, who stand to make a killing: Microsoft, Yahoo bankers eye $1 billion payday (MSFT shareholders get to supply the blood) 4) An absolutely scathing review of MSFT: No joy for Microsoft shareholders in Yahoo Excerpt (bolding mine): Ask investors what they think of Microsoft's innovative juices. The company's stock market value is huge – $280-billion (U.S.) – but it goes for 15 times earnings. Compare that to a far less profitable information company like Thomson Corp., which has no true monopolies (and is a part-owner of this newspaper). At a 10th the market cap, Thomson changes hands for 21 times forward earnings. Why? We would argue that it's at least in part because Thomson is much more careful with shareholders' money. Thomson investors are rarely diluted by acquisitions or by squandered investments. It's hard to argue with millions of investors. (Hmm..less "careful with shareholder money"? √ Constantly diluting us by "acquisitions or by squandered investments"? √√ Arguing with millions of investors? √√√). 5) The most succinct but insightful comment I've seen yet on this market space. Ballmer would be well advised to pay attention to the same input: Yahoo Vet Millard: Microsoft Deal Was "Inevitable" (MSFT, YHOO, MSO) Excerpt (bolding mine): Yahoo lost sight of who they are and who their customers are. Yahoo's perception is that their only competitor is Google. But 95 percent of their revenue comes from advertising -- so their competitors are really the broadcast TV networks. They think they're in the search game,when they should really be in the brand advertising game. (Oh, and hire this person) 6) Analyst Trip Chowdry provides some comic relief with a fantasy conspiracy theory worthy of Oliver Stone: Analyst: Microsoft's Yahoo bid may be fake (If only Ballmer were that strategic and cunning. He's neither.) 7) The sad reality: Analyst: 70% Chance For MSFT-YHOO Deal (Near 100% chance MSFT shareholders lose money either way though) 8) Finally, the no-brainer trade now that MSFT management have effectively told us they've revisited the future and that what appeared to be incredibly bright initially, turned out to be just the approaching headlights of a Mack truck traveling full tilt with glamour tags reading: GOOG (Cue sound of air horn) Meanwhile, another selloff for MSFT on 2X average daily volume: Update: Worth a read... An Open Letter to Steve Ballmer Excerpt: I know you want to make your mark on Microsoft, but you should stop trying to be all things to all people. Take a tip on focus from that other Steve. Dear Steve, Let's talk over this Yahoo! (YHOO) thing before you move ahead. It's a profoundly bad idea. Also: Another Reason MSFT Won't Raise YHOO Offer: Capital Research (Some possibly good news here. Especially since Capital Research is the largest institutional shareholder of both companies, and therefore has much more potentially at risk on the MSFT side) Update #2: More... um, "praise" for the deal: Would buying Yahoo be a mistake for Microsoft? Excerpt: He is especially frustrated by Gates's pursuit of his white whale when Microsoft has bigger fish to fry, like parrying the challenge from free operating systems like Linux; adapting to the migration of computing from the desktop to the cloud, and competing with Apple as it insinuates its hardware and software into people's living rooms, cars and telephones.... "Just now, when they've got momentum, they're going to crush it with this terrible deal," Mowrey said. "I think Mic[...]
Wed, 06 Feb 2008 19:50:00 +0000I know I'm not. And if you think the market is getting it wrong, consider that MSFT was previously expected to make $2.09 per share in FY09. At a semi-reasonable 18X multiple, that would have generated a target price for the stock of around $37.62. Now, consider that some - notably Bernstein - think the YHOO deal could be .32 dilutive to that FY09 EPS target alone. In other words, it could drop to $1.77. If the multiple stayed the same, that would take the target down to $31.86. Which, not coincidentally, is virtually identical to what Canaccord provided today as they downgraded MSFT: Canaccord Adams downgraded MSFT as they believe shares will come under pressure if the company raises its bid for YHOO. Note that the firm upgraded YHOO to Buy from Hold. Target to $32.00 from $40.00. But wait, it gets worse. See, with all the extra risk and uncertainty, there's no particular reason to think the market will still award an 18X multiple. I'll leave you to do the math if it dropped to say 16X, or - God forbid - 12X. Additionally, no one knows exactly how dilutive this deal will be. That's because it's half cash, half stock. Now in theory, as MSFT shares continue to decline, so too does the value of the offer. There's just one problem: even if YHOO management decide to accept the deal (and their options are pretty limited), they're very likely to insist that MSFT get it back up to at least the original $31/share level (some are saying $36-$40 might even be required). Since Ballmer appears to be intent on doing this deal (irrespective of the strong feedback shareholders whom he is meant to represent and work for are giving him), that would leave two choices: adjust the share multiplier higher (from its current .9509 of a MSFT share) - thereby resulting in even more shares being minted, further dilution for us, more downward pressure on future EPS, and a larger ongoing dividend obligation for the company - or change the 50:50 cash/stock balance to favor more cash which, since MSFT doesn't have it, would require taking on even more debt. And the more MSFT shareholders bail, the lower the stock goes, and the worse this non-virtuous failure loop becomes. Neat, huh? Then there's the fact that while Dumb and Dumber say this deal will be breakeven or better within two full fiscal years after the deal closes, they also said that was excluding various charges. In other words, don't count on EPS after charges - or final EPS - to be breakeven, even through FY10. Related, there is no way that YHOO on paper is going to be worth this price. So at some future point, MSFT is going to have to take a huge charge to write down the "goodwill" difference between what they paid, versus what YHOO was actually worth. I guesstimate that that charge will be at least $1/share, and it could easily be $2 or more depending on what the final price is, how the integration goes, etc.. Needless to say, a $1-2 charge in some future fiscal will have the effect of wiping out a large part of MSFT's overall earnings for that entire year. As I said in the last post, if you're a MSFT shareholder you should be hoping this deal gets kiboshed by either YHOO or regulators (however unlikely). Alternatively, you should hope that MSFT and YHOO come to some other accommodation. The best option there would be a standalone entity (either under the YHOO listing or a new one), into which both YHOO and MSFT contribute and MSFT shareholders get stock. Update: Is Microsoft Desperately Seeking Yahoo? Our case-in-point arrived today when Canaccord Adams cut Microsoft from "buy" to "hold." Prior to today's activity, MSFT sported 14 "buy" or better ratings, compared to just 4 "holds." If this line of thinking begins to take hold on Wall Street, the shares could be looking at additional declines over the next few months. Additional fuel for the fire could come from the options pits, as th[...]
Tue, 05 Feb 2008 16:40:00 +0000That's Joe Rosenberg's take on MSFT's bid for YHOO (Rosenberg is Chief Equity Strategist for Lowe's Corp., a major Wall Street heavy hitter, and MSFT shareholder). Close, Joe. It's not like that, it is that. Rosenberg continues: It's absurd. They're not going to earn anything like a reasonable rate of return on their investment in Yahoo. It just doesn't make sense. This deal would do more harm to Microsoft shareholders than any of its competitors can do to it," Rosenberg said. "The company has lost sight of its principal focus, which is to produce value for shareholders." Hmm...I believe I may have mentioned that last part a gazillion times or so over the past few years. Meanwhile, Ballmer and Liddell are busy talking up the synergies of this deal. "Synergies", btw, are what you point to when you can't provide any specific, reasonable, measurable basis under which this deal makes financial sense, especially for MSFT shareholders (otoh, YHOO ones make out like bandits). As someone who has repeatedly called for MSFT to reduce its at times chronic overcapitalization and use that money to make smart, accretive acquisitions or return it to shareholders, I'm obviously not against them doing either per se. But if you're going to go the acquisition route, note the qualifiers: smart and accretive. Buying YHOO, imo, is neither. The company already agrees that it isn't the latter - at least not for two full fiscal years following a successful purchase, and even then "excludes a lot of the accounting and purchase accounting of one-off costs". Ballmer is touting this deal as building on the successful momentum that Online has been able to generate. Huh? This deal is about failure, not momentum. Failure to spot the potential of this market space back in the late 90's. Failure to respond for YEARS while others staked out their now dominant positions. And failure over the past 4 years, since the company got "serious" about it, and spent $10B's directly (and likely at least that much again in R&D) in a failed attempt to catch up - or even generate a profit. Meanwhile, we have the failure of his previous massively expensive "emerging" bets to be anywhere near as attractive, or even to collectively payoff. Then there's the issue of credibility. Why should we believe anything coming from the team responsible for that track record of successive failure, who initially said catching up would be a matter of 6-12 months (how'd that work out?), or who recently justified $6B more of our money going to buy AQNT by assuring us that most of the big pieces were now in place for success? On the timing front, why now when MSFT was finally showing some organic business strength and attracting investors? In a heartbeat, perception of MSFT has gone from potential comeback kid to looking even more desperate and ineffective than ever versus GOOG. And on a more macro basis, why do this with the economy sliding into recession, with many forecasting an extended bear market, when GOOG is experiencing their first major revenue and earnings miss (finally beginning a process of unwinding their - and most related company's - higher multiples), and consumer-facing entities in particular are likely to be hard hit? Was YHOO secretly getting stronger and more valuable despite their recent grim earnings call, layoff announcements, and nosediving stock price? And what about valuation, a whopping 60% premium to market bid - some 66X earnings - for a company already trading at 2X the PE of MSFT and expected to actually shrink earnings next year despite operating in one of the industry's fastest growing segments? And given GOOG's miss the night before, YHOO was poised to drop significantly further on Friday. So then the real premium would have been more like 70%. Then there's the impact on MSFT shareholders. You know, the folks who actually own[...]
Thu, 24 Jan 2008 18:05:00 +0000Preview: Stakes heading into MSFT's report are about as high as I can remember. The punishment for companies who disappoint this earnings season has been swift and severe - just ask INTC or AAPL holders. Additionally, you have markets that are on the edge of the abyss. At the lows yesterday, the Nasdaq notched the 20% decline that signals a bear market - and the Dow and S&P weren't far behind. Luckily, buyers waded in and the subsequent rally managed to turn it into a reversal day. But signs increasingly point to the demise of the bull market that began back in 2002. For its part, MSFT has held up amazingly well during this market meltdown. Although significantly off its recent highs, it's substantially above the $28.60 or so level it would be at had it just performed like usual (i.e. at or below the index). The risk, of course, is that we'll end up there shortly if the market takes exception to anything said tonight. Alternatively, if MSFT impresses, maybe we rally a buck and give the rest of tech at least a short term boost as well. As a reminder, consensus is as follows: Revenue: $15.95B EPS: .46 See more background here: Microsoft expected to post sharp profit rise The most important figure - guidance for the year - was: Revenue: $58.8B-$59.7B EPS: $1.78-$1.81 If MSFT backs away from that at all, we're done. Q3 compares are also going to be ugly given the benefit realized last year from the deferred Windows and Office revenue. As per usual, if the market likes the report and guidance overall, then what is primarily an accounting/timing issue will be given a pass. Otherwise, we'll see headline after headline tomorrow about "slowing growth". FWIW, Goldman is banging the drum and getting "conviction" about MSFT again ahead of earnings. They called it right last time, although their conviction was short-lived - more like an infatuation. So let's see if [newer] analyst Sarah Friar can make it 2:2, following Rick Sherlund's disastrous 0:30 record previously. I'll be back after earnings to update this post. Meanwhile, you can check out the recent Motley Fool bull versus bear debate on MSFT, or join me in scratching your head over this development. Results: Very strong. Looks to be a beat of consensus and whisper numbers on both the top and bottom lines, along with raised guidance for the full year: Revenue: $16.37B EPS: .50 Guidance for the year: Revenue: $59.9B-$60.5B EPS: $1.85-$1.88 Stock is up $1.50 to $34.75 currently in AH. Back with more commentary after the cc. Conference Call and 10Q analysis: 15% growth overall (net of technology guarantee impact) $4.1B in buybacks during the Q (leaving $8.7B remaining on the previously approved $36.2B) Online advertising growth of 38% (26% excluding AQNT) Online expenses grew even faster though E&D managed its third ever quarterly profit and first back to back one (now just $5.4B to go before breakeven) Cost of revenue dropped from 29% to 22% during the Q (yielding 21% vs 23% YOY half way through the fiscal) Result: operating margins increased 4% to 40% SharePoint grew 50% during the Q, as did Office Communication Server Dynamics customer billings up 26% 427M Windows Live ids from 352M last year 22nd consecutive quarter of double-digit revenue growth for Server & Tools (very impressive) Over 60% of sales from users and regions outside of the US (emerging markets up nearly 30%, non-US mature up 20%) Unearned revenue down sequentially, but up YOY ($12.178B vs $11.861B) and $500M more than forecast R&D up 15% on the Q to $1.885B from $1.637B, but down a point as a percentage of revenue (and no, I'm no clearer on the value received for money spent) Cash + short term investment down to $21.1B from $23.4B Expect PC growth for the year to be 11-13% now (up 1% from previous) Diluted sh[...]
Fri, 11 Jan 2008 02:08:00 +0000Jeff Raikes retires from MSFT. My initial reaction - "Wow!". Didn't see this one coming. Gates, Ballmer, and Raikes have effectively been the top echelon of the company for as long as I can remember. With Gates having already announced his retirement this year, and now Raikes as well, that leaves just Ballmer from the original troika. The [external] choice for Raikes' replacement seems to have the right pedigree. There is also a fairly decent transition period - so hopefully no balls get dropped in the process. But Raikes did a solid job with Office and was widely seen as the leading candidate to succeed Ballmer. So combine that with some other recent high level departures, and I don't think the market is going to respond positively to the news tomorrow. Some coverage: Key Microsoft exec Jeff Raikes retiring (Updated) Raikes Steps Aside Raikes retiring, now who will be the next CEO? Juniper Networks exec to succeed Microsoft Business Division President Raikes Microsoft Announces Retirement and Transition Plan for Jeff Raikes, President of the Microsoft Business Division Microsoft Shakeup Equals a Raikes Take-Out Microsoft’s Raikes retires, replaced by former Macromedia CEO Stephen Elop Update: Made some additions/deletions. Update #2 (1/11/08): Additional coverage that caught my eye: Raikes reflects on 26-year run at Microsoft Raikes to Follow Gates Out the Door Office man to exit Microsoft "I don't have CEO envy," he said. "I like the kind of role that I play in the business. The key thing is Steve's a tremendous leader of our company and he's made it clear that he wants to be CEO here for many, many years — maybe 10 years or more — and I think that's great. I think that's the best thing for Microsoft." (possibly telling comment here, assuming you read between the lines?) Analysts React to Elop’s Microsoft Defection Elop brings strong skills to take on competitors Juniper shares drop 15% after COO resigns to take Microsoft job (apparently someone agrees with the article above, though there was a analyst downgrade there as well). Microsoft shuffles management in mid-year cleanse (Includes some analyst perspectives for and against the Elop choice) The Microsoft reorg week in review (Foley details the recent senior level departures) As someone who has been calling for leadership change for some time, I guess I'm overall happy to see it possibly occurring in earnest. But if it is (and the departure of Gates and Raikes make it unique regardless), it's almost inevitable that there will be those you didn't want to lose along the way - and ones that don't go who should. Let's hope both are minimized. It would also be nice if these announcements weren't landing so close to earnings and dribbling out piecemeal, with reports of still more departures to come. As this level, as reported, these things don't normally come as a surprise, at least for Ballmer. So make the announcements - all of them - and let employees and the market move on. That way it sounds like planned change, not musical chairs at the top or - worse - abandon ship. [...]
Wed, 09 Jan 2008 22:06:00 +0000So Bill Gates had his final CES keynote as a full-time MSFT employee (and likely his last ever). Anyone who has attended a Gates presentation knows that they're long on repetition and short on excitement. In fact, they're normally real groaners. But apparently some were hoping for a miracle despite that well-established track record. And given that the consumer market is red-hot right now, and MSFT - being perpetually slow to respond - has finally even acknowledged that it needs to do a better job there (earmarking $300M more for advertising), it would have been nice to see Gates and MSFT do more. But alas, it wasn't to be. In fact, the best part imo was the video - which shows a self-deprecating side of MSFT that I think few external watchers appreciate exists. Still, the media reviews are surprisingly scathing. Which suggests to me that others besides myself are tiring of MSFT constantly promising innovation but delivering precious little of it, and are no longer afraid to say so. Some examples: No More New Things From Microsoft Excerpt: In an era when the vanguard of technology is creating smart devices for entertainment and communications, Bill Gates, the outgoing chairman of Microsoft, had little that was interesting or innovative to show off in his last annual keynote at CES in Las Vegas on Sunday. Consumer Electronics Show (CES) 2008 A SuperSite Special Report Excerpt(s): But the biggest problem for CES isn't the competition, it's internal. And you only need to look as far as Microsoft to see what's wrong. Despite headlining the event, Microsoft didn't make a single major announcement last night, let alone acknowledge that some of its biggest announcements from last year--Windows Vista, new Media Center Extenders, or an IPTV-based Xbox 360--have yet to materialize or have any real positive impact on the market if they have. And for crying out loud, start talking to Steve Jobs. That the most influential consumer electronics company in the world isn't at CES is a crime. And finally, the Pièce de résistance: The Truth That Dare Not Speak: The CES Keynote Sucked Excerpt: The big question is how, in 2008, have we come to a point that Microsoft is so bereft of new ideas and innovation that what was once the most important keynote speech of the year turned out to be a complete dog? It’s not for a lack of good people, there are many in Microsoft doing a great job, and there’s even some good technology and products being created (Silverlight and Windows Live Maps being two examples) and to those people I say don’t take this personally, it’s not personal, it’s just that if people don’t have anything interesting to say, they’re better off not getting on stage and making us yawn. I’ll be in San Francisco for the Steve Jobs keynote at Macworld next week and I doubt that I’ll be writing a similar post. "How" indeed. Current leadership should really reflect on that - especially in light of the massive R&D spend relative to virtually everyone else (especially AAPL) - and make substantive changes. Will they? Of course not. They'll simply deny it's true - call it the "Vista defense". Reviewing the rest of the MSFT-related CES coverage, I found this article the most interesting: It's all about software, says Gates Primarily because of this excerpt from Gates, which encapsulates most of the reasons I continued holding MSFT: Gates: Remember, it's all about software. So why are we talking about those companies? There are very few companies that understand software. The phone is becoming about software, the TV experience is becoming about software. Our bet goes back to the founding of the company--that software is going to be at the center (of things). It really is coming tr[...]
Sat, 22 Dec 2007 18:51:00 +0000I haven't published anything for a couple of months, which led one commenter to wonder if I'd been "shut down". That sounded kinda ominous - sorta like black helicopters swooping down from Redmond HQ. Alas, nothing quite so dramatic. I simply haven't seen much that I thought was worthy of comment. Not that I didn't try. In November, for example, I wrote up the annual shareholder meeting. I titled it "The Annual Transylvanian Convention" because it felt more like I was listening to management dancing the Time Warp at the Rocky Horror Picture Show. There was company leadership delivering their well-rehearsed but increasingly tired old lines, and a cast of shareholders from the lunatic fringe, including head psycho Ken Hutcherson. Had I been in attendance - versus listening to the webcast - I would definitely have sailed a piece of burnt toast in the good Reverend's general direction. Then again, my focus would have been on asking Steve: A dollar invested the day you took over as CEO in 2000 in any of your main peers/competitors like IBM, ORCL, HPQ, SAP, and AAPL, or simply placed under a mattress, would be worth far more today that the same money invested in MSFT which is down almost 40%. Additionally, despite all the money the company has made during that time, shareholder equity has actually declined, in large part to accomplish even that anemic level of stock performance. Given that track record, why do you think shareholders should continue to support your management team, this BOD, and continue holding the stock moving forward? I also started putting virtual pen to paper on the various "How best to structure a MSFT/YHOO deal" articles that appeared that month. But then decided that talking about "how best" to structure a MSFT/YHOO merger is really just an oxymoron. Partner? Yes. Merger? Expensive for MSFT shareholders and highly unlikely to succeed. Anyway, I've continued to follow events and the stock. And it's not like there haven't been a ton of developments on both. WRT the former, I guess I've been struggling to decide whether the recent impressive flood of product releases (updates, SPs, betas, etc.) - gives me hope that MSFT is finally getting its act together, or whether the massively bungled ongoing clusterfuck that is Vista's launch, the continued market share hemorrhaging to Google, the embarrassing success of the iPhone (which appears to have MSFT's mobile group in full damage-control mode and doing public mea culpas about what they need to fix in their UI), etc., convinces me that this company is in a fight for its very survival - and losing. Indeed, that's why the title of this post is a question mark versus a statement one way or the other. What does it say, for example, when you have a disconnect this big?: "When Longhorn and the Longhorn wave of products ships, they will be great products. I have absolutely no doubt about that." Steve Ballmer "#1. No Wow, No How: Windows Vista Five years in the making and this is the best Microsoft could do?" PC World, The 15 Biggest Tech Disappointments of 2007 In fairness, Leopard and iPhone also made PC World's list. But numerous other publications have said effectively the same thing about Vista. More importantly, sales results - or lack thereof - prove it. This release has not resulted in the "2X adoption rate of XP" that management claimed it would. Indeed, it's lagging XP on an apples-to-apples compare. Now that's still a huge number in absolute terms, but it's a significant failure vs even company-provided expectations (far less market ones after five years in the making). Meanwhile Leopard, despite many widely-reported bugs, has been a blowout success for AAPL. Quite frankly, if you compare the progression of OS X over the past decad[...]
Wed, 31 Oct 2007 22:34:00 +0000A week ago, MSFT could do no right. Now, following the recent strong quarterlies, MSFT can seemingly do no wrong - or at least the market is prepared to overlook it. Vista still not tracking well and actually slowing? Yawn. Just give it more time. Higher recognition rates dramatically helped client performance last quarter? Sure, but they'll find some more revenue later. Currency gain last Q equal to much of the percentage increase in revenue and earnings guidance for the year? Well duh, but someone might as well benefit from the ever-declining US peso. Insiders selling with abandon again, including ex-President and current Director Shirley who unloaded 500K shares or 25% of his entire position? Hey, a guy's gotta live. Plus, $17.5M doesn't buy what it once did. Apple sells 2M copies of Leopard in the first weekend of availability (~10% of all capable machines)? Not to worry, Mac fans are just zealots. US Antitrust oversight of MSFT might get extended another 5 years? Oh well, legal needed something to do anyway now that lawsuits are decreasing. Even competitors are helping out with some uncharacteristic missteps; AAPL having some fairly significant - not to mention embarrassing - teething problems with Leopard; GOOG suffering brain-drain and flailing a bit trying to check the growth and popularity of Facebook; Linux growth beginning to slow as the initial migration from proprietary UNIX starts to abate. Not to be left out, mainstream media is jumping on board too. For example, Joe Wilcox writing about the AAPL/MSFT double standard (funny stuff, especially since as a supposedly neutral [at least] MSFT observer he has been among the worst offenders) and ZDNet asking "Can't we give MSFT some props?". [BTW, have no fear. Yours truly isn't about to drink the Kool-Aid completely just yet]. And with that, the stock continues to act more like a Chinese IPO. Okay... maybe I'm pushing it a bit there. But it has made a pretty good dent in the past 5 years of underperformance (now ahead of the NAS over 1 year, still behind over 3). I tell you, if it wasn't for the fact that the sun keeps rising each morning and setting each evening, I'd question whether I was dreaming. If MSFT now starts hitting ship dates consistently, I'll be forced to conclude that I've finally wigged out or entered the Twilight Zone. Of course, the (more likely) reality is that MSFT wasn't as bad as it seemed a week ago, nor as good as it seems now. The problems that were there before are still there, and much of this [stock] move is simply catch up. For example, even with the recent jump, MSFT still trails the industry average P/E. Plus, the shattering of the 5 year trading range likely attracted some short-term technical buyers - and they'll unwind their trades and take their profits as quickly as they put them on. Still, the high volume that has characterized this move suggests that institutions are doing some serious buying as well. And they don't normally do that unless they expect several good quarters ahead. That said, a decent pullback would seem like a foregone conclusion and even healthy, whereas a continued run without consolidation is risky long term. Today, we didn't end on the high while the Nasdaq did. So perhaps that correction is coming. We'll see (although it's up in AH). Getting back to the company, I hope the recent stock run is viewed in context internally, not used to excuse continued inaction or otherwise ignore the many areas that still need attention. In particular, I hope someone sees the wisdom inherent in this statement, made recently by YHOO's Jerry Yang [bolding mine]: In an acknowledgement of the famous "peanut butter" memo, in which one Yah[...]
Thu, 25 Oct 2007 15:43:00 +0000Pre Results: Some sample commentary heading into earnings: Earnings Preview: Microsoft Microsoft investors eye rosy holiday quarter The stock is having a very good day and setting highs that haven't been seen since 2002. With expectations running so high there's growing risk for disappointment. Let's hope MSFT can deliver for a change. We'll find out shortly... [OT: BTW, for those who are interested, I think the Facebook deal is an okay one. No, Facebook isn't worth $15B by any stretch of the imagination. And no, the incremental advertising that MSFT is likely to recoup from the deal isn't worth the $240M either, especially given likely revenue-share concessions (all management bs to the contrary). So while there's a risk that this further extends MSFT's track record of money-losing investments, in this case I think you have to call it a reasonable one. Why? Because even MSFT should be able to recover half that money in incremental advertising. The 1.6% equity stake will be worth something. They get a stronger seat at the table for one of the fastest growing application platforms on the web (a huge opportunity that was also a potential threat). They send a message that they're serious (which should result in some spin-off benefits with other potential advertisers). And finally, losing Facebook would have been a huge blow to their already struggling advertising ambitions (not to mention easily shaving $240M off MSFT's marketcap). So let's call it: Competition 100: Ballmer 1. But now he's got momentum... :-)] Results: Wall Street was looking for $12.57B in revenue and EPS of 39 cents a share. Microsoft had guided for revenue of $12.4B to $12.6B, with EPS of 38-40 cents. FirstCall is reporting actual of $13.76B and EPS of .45 cents a share. Wow! Still waiting on confirmation via MSFT... Confirmed: FirstCall got it right. It's a much-needed blowout: (More after I review the actual earnings release and listen to the conference call.) Post results and conference call: Okay, that's done. Other key positives: Fastest Q1 revenue growth since 1999. Operating income at 30% exceeded revenue increase of 27%. Operating margin up ~2 points to 43%. As seen above, every business grew double-digits. Client growth exceeded overall PC growth for a change(primarily due to piracy reduction, especially in fast-growing emerging markets). "The OEM Premium Mix increased 16 percentage points to 75% driven by increased consumer premium mix". Server & Tools continued to lead in bottom line leverage (16% revenue growth but ~25% earnings growth). E&D managed their second ever profitable Q (only $5.8B more to go and they can start generating a net profit lifetime-to-date). Q2 guidance raised to $15.6B - $16.1B and EPS of .44-.46 versus consensus $15.64B and EPS of .44. Full year guidance raised to $58.8B-$59.7B and EPS of $1.78-$1.81 versus consensus of $57.42B and EPS of $1.73. Negatives: Limited color on specific Vista adoption. Liddell says 85M units sold, or roughly 2x XP over the same timeframe. But that ignores the extended [pre-release] period during which many XP sales qualified for Vista upgrades. It's also units on a [now] much larger base, not relative adoption rate (which was the original goal). Lots of comments about "still early days" and management is comfortable with uptake (as incredulous as that sounds). Also, some proxies like overall growth rates and contract renewals - which are suggestive that Vista is having a positive impact and large-scale deployments may be nearing, but a step removed from hard data like marketshare and/or specific customer references. Online lost even more money (along wit[...]
Sat, 20 Oct 2007 18:16:00 +0000I had coffee with a friend last week who is ex-MSFT. He follows my blog and asked why I hadn't posted recently. I told him that I'd actually penned three different posts but decided not to publish any of them. The first touched on Vista's challenges and the growing threat from AAPL (short version: Vista has stumbled badly. Forget the original 2X the rate of Windows XP goal, it's barely tracking it - a damning indictment after 5 years of development and some $5B spent. Also, AAPL is gaining serious momentum - verifiably as well as anecdotally. If MSFT continues to do next to nothing about it, they risk losing not just more marketshare, but possibly OEM loyalty). The second reviewed Ballmer's latest plan to "transform" MSFT (the future isn't in plastic, Benjamin Braddock, it's in advertising. Hmm.. I wonder how he twigged to that one? BTW, is that the 9th or 10th transformation since Ballmer took over? I'm losing track.). Finally, I did one on the eternal bad news story: the stock. In particular, some recent Ballmerbabble - when he wasn't busy making more idle patent threats against Linux: Mr Ballmer says that the sluggishness is in part the result of overly optimistic Wall Street targets - misguided calculations by “all these expensive, well-meaning financial types” - and in part a function of Microsoft being a technology company subject to more risk than a “bricks and mortar business, like Tesco”. ("Overly optimistic Wall Street targets"? "Being a technology company"? Sure, Steve. Um, how come that hasn't affected say, AAPL? Or HPQ?, or SAP?, or INTC?, or ORCL?, or IBM?, or... well, you get the picture.) BTW, in the second one Ballmer said about advertising: “It gives us the chance to surprise shareholders,” A simpler way to "surprise shareholders" would be to concentrate on doing what he/MSFT already chose to do, only doing it well. Let's start with the basics. Like, say, understanding customer's needs well enough to ensure you have designed a compelling product, then actually shipping any [major] one on time, doing a great job of marketing it, and - this is key - make a profit. Combine that with some sanity wrt headcount increases (especially in the US), and maybe consensus EPS estimates might look more like this, rather than like this. Investors might even award a PE premium to market, versus the current discount. Anyhoo... despite spending several hours writing those three posts, I didn't bother hitting the "Publish" button in Windows Live Writer (an excellent product btw). Why? Because frankly there was nothing much new there. Sure, the specific examples were current. But the basic underlying themes have been discussed here and elsewhere ad nauseam. And while it would be nice to ponder what could happen if MSFT stopped being such a screwup, as John Dvorak does here, including this amusing "glass is half full" statement: Because there is so much room for improvement at all levels, there's great upside potential for Microsoft. the fact is that current leadership show few signs of even acknowledging their screwup status, far less attempting to address it. [btw, yes I understand the surface-level oxymoron of calling a $50B company a screwup. It's a statement relative to potential] Case in point, here's Forbes succinctly describing some of the challenges in an article entitled "Microsoft: Time To Plot A Comeback"?: The Redmond, Wash.-based software giant faces growing competition in its core software business, which dominated the industry for two decades, and it hasn’t had a bottom line-galvanizing succes[...]
Sun, 23 Sep 2007 01:32:00 +0000It's proxy season again. And thanks to new corporate compensation rules, you'll find more detail than ever in this year's document. For example, you'll learn that while CEO Steve Ballmer may have been unable to get the trains to run on time, invest in areas that actually return a profit, catch major new trends, restore confidence, or get this moribund stock moving despite record buybacks using our cash, he was paid less than most CEOs to do it. The Board, in their collective wisdom, think that constitutes being "underpaid". I think it proves the old adage "you get what you pay for". The proxy also gives the deepest glimpse yet into the mysterious formulas and metrics which underpin the so-called Shared Performance Stock Award (SPSA), indelicately referred to as the "executive feeding trough" from time to time by a certain shareholder blogger. In particular, you'll learn that senior most leadership walked away with millions each, because the company aims to pay "above the median" for such top talent (read: way above). However, that was only half what they could have received. The Board, you see, may sit idly by as you and I continue to lose money on our investment. But they want you to know they're no pushover: We were satisfied with our performance in product acceptance and SMSG and MBD financial metrics. Our performance in customer satisfaction, while steady, and Internet searches, while growing, fell short of our challenging goals, and we were not satisfied with our performance in EDD financial metrics. BTW, that last one is a euphemism for "even we understand that we can't be seen to condone another $1B loss of shareholder cash - on top of the mind-blowing $5B lost so far - even though it resulted from a strategy we approved of rushing a product to market without adequate testing". Hmm...think that disappointment translated into maybe zero SPSA payout for H&E head Robbie Bach? Doesn't say. Here's my wild-ass guess: "No". Steve and the Board also want you to know that part of the reason for the large compensation payments is too retain these key individuals. Apparently folks who collectively can't lead, execute, or inspire, are in high demand. Go figure. Along the way you'll learn that the stock price is not part of the extensive SPSA metrics. What's that line again about "you get the performance you request and reward"? However, rest assured that the general Compensation Philosophy includes this objective: provides a significant portion of total compensation linked to achieving performance goals that we believe will create shareholder value in the near and long term Just in case the stock being down 50% since 2000 and having badly underperformed all major indexes and most peers this entire decade has caused you to er... maybe question the value of their beliefs? Also, be advised that the massive insider selling which has become the hallmark of MSFT post 2000 - and a frequent topic here - has now caused sufficient embarrassment that the usual "we don't comment on sales by our executives" is no longer sufficient. From now on, executive officers will be forced to keep a multiple of their salary in company stock (3-10X base pay depending on level). Doesn't that just fill you with confidence that the supposed "creme de la creme" of MSFT management need to be forced to hold this stock? And don't worry about our fearless leader Ballmer: Because his interests are already closely aligned with shareholders’ interests... Again, in case that wasn't as um...obvious from the stock's decade-to-date performance as it might [...]
Mon, 17 Sep 2007 16:34:00 +0000Sorry to bastardize a line from Monty Python. But there's no way to sugar-coat it; MSFT got clocked in Europe today. That was a loss of staggering proportions. Where most had expected a split-decision - myself included, the Court of First Instance upheld virtually the entire EU Commission case: The Court of First Instance essentially upholds the Commission's decision finding that Microsoft abused its dominant position," a court statement said. As a result, the judgments on both bundling and interoperability information stand. As does the record fine. MSFT even gets to pick up 80% of the EUC's legal costs and that of several competitive rivals - or at least rival-backed lobbying groups (EUC picks up 20% of MSFT's costs). What I haven't seen covered is whether this is likely to open the floodgates to additional litigation/financial settlements with competitors in Europe (as it did in the US following the Final Judgment). Caveat: I haven't read the detail of the Court's decision. Supposedly, MSFT will be still be allowed to improve its products. But when the court found no technical advantage to bundling Media player the way they did, you have to wonder how high the bar will be to add anything without a major fight from a further emboldened EUC. And make no mistake, they are that: “The ruling confirms more than ever that Microsoft must comply,” said EU Competition Commissioner Neelie Kroes. “I will not tolerate continued noncompliance.” Additionally, chances that Office and Vista - both of which are under investigation - will now be subject to further EUC demands and or charges seems like a foregone conclusion. As readers know, I personally thought the European case was far weaker than the US one. Nevertheless, MSFT's legal team went down to total defeat. While they can still appeal to Europe's highest court, that is now restricted to much narrower rules of law only. It's TBD whether they will do so. If they're smart they won't. Which of course means... Here's the current party line: “I don’t want to talk about what will come next,” said Microsoft lawyer Brad Smith. “We need to read the ruling before we make any decision.” EUC head Neelie Kroes is quoted as saying that her view of "success" [now] would be for MSFT's European marketshare to eventually drop to 50% or so. An aide later felt compelled to add that she meant "as a result of normal competitive forces". Sure. Meanwhile, the stock is off $0.37 or 1.27% on decent but not spectacular volume (presently). The market appears to be trying to decide if this is at least short-term resolution - which they like, versus the beginning of the end for MSFT's dominant market position in Europe - which of course they don't like. Unless the US Administration brings some persuasion to bear to keep the EUC in check, MSFT - and possibly other dominant companies - are going to find it even tougher doing business in Europe. Oh well, at least we got that $0.10 dividend last week. Did you even have a chance to spend it yet? Update: (related) Microsoft loss is bad news for Apple, Google and, Harsh reaction in US to Microsoft EU antitrust ruling Excerpt: Thomas Barnett, head of the Justice Department's Antitrust Division, said the European Court of First Instance (CFI) in the case against the US software giant may do more harm rather good for consumers. "Rather than helping consumers, (the decision) may have the unfortunate consequence of harming consumers by chilling innovation and discouraging competition," the US official said in a strong rebuke of the EU action. Barnett said [...]
Thu, 13 Sep 2007 23:25:00 +0000Okay, so I've posted before about MSFT's dividend strategy: What exactly is MSFT's dividend strategy? A penny for your thoughts? More specifically, their lack of one. I also noted in a recent post that CFO Liddell dropped some hints that led me to believe we'd see some changes: He also seemed to foreshadow some improvement in the dividend strategy (which has been a total mess so far). Although he still expressed a preference for buybacks vs dividends. Well, late yesterday we got MSFT's apparent first attempt at that. [note: someone might want to tell Investor Relations to update their dividend section since it still reflects the old info]. As we've come to expect from this leadership team, it was done in the usual clumsy, ineffective manner - at least if it was meant to communicate a move to a more serious, competitive, dividend strategy versus the previous hodgepodge. The actual announcement? Another .01/Quarter increase - just like last time. That brings us to .44 annually, or 1.51% yield at the current closing price. But due to the now higher share value, that's actually a lower yield than when MSFT announced the last dividend increase (1.51% vs the then 1.54%). It's also a smaller % increase on its own. Clearly, management isn't telegraphing much confidence in the future stock price despite its depressed YTD performance. By way of comparison, INTC's current yield is 1.77% and IBM's is 1.6%. The S&P 500 average is 1.71% (2.2% if you count just dividend-payers) and the DOW 30 average is around 2.3%. In other words, even with this increase, MSFT's dividend lags behind the S&P 500 average, the DOW 30 average, and behind some of its equivalent tech peers - as it has since inception. But the "bonus" is that you get worse-than-market stock performance too! For example, down over 2% YTD while the NAS is up more than 7%, for a total 9% relative underperformance (7%, if you want to compare to the S&P). If you're looking for a bright spot, I guess you hang your hat on the fact that a penny still represents a 10% increase. Also, that the announcement comes in the same month as last year (versus December previously). That and the same [nominal] increase, is at least a move towards some consistency. Of course if you're cynical, you could infer that MSFT management simply decided that dividend increases are one way to placate disappointed investors ahead of the annual shareholder's meeting. Now you see the pea, now you don't... As posted above, Liddell (at least) still professes a preference for buybacks over dividends. I'm unsure why personally, and he's never elaborated. FWIW, I'm not against buybacks per se. My problem with the MSFT variety is that for most of their life they've gone to offsetting dilution vs actually reducing shares outstanding. They've been much more effective at the latter over the past 1-2 years, but MSFT can no longer sustain that pace without further reducing cash and/or doing what some Wall St. fund managers have actually suggested: taking on debt to do even larger ones. Buybacks also have an inherent risk that management will abuse them to game EPS or prop up the stock, rather than buying because they truly believe their shares are undervalued. Not that this team would ever do that, of course. Cough, cough... Nevertheless, you can be confident there will be more buybacks, if only to offset ongoing dilution from management/employees and the increased supply in the market caused by Gates massive ongoing sales. Hopefully, w[...]
Mon, 10 Sep 2007 17:59:00 +0000Mini-Microsoft has a very good post that reviews the recent Company Meeting. Looks like he came away happy with the content. Most interesting to me - and a seeming highlight for some others - was Steve Ballmer giving a speech where he reviewed a company scorecard: Especially impressive was SteveB's scorecard slide where he ranked red/green/yellow how we fared against each of Linux/Oracle/IBM/Sony/Nintendo/Google/Apple/piracy etc etc, customer satisfaction, revenue, innovation, hiring, etc. I don't recall that ever happening before. In meetings past I always felt the execs sidestepped issues of consumer perception and confidence. (via a link provided in Mini's post) I'd blogged some time ago that MSFT needed a consistent scorecard for each business unit. It was painfully obvious from various analyst/financial community events that each group has been free to cherry-pick whatever metric they felt put them in the best light - no matter how silly that item was. So I'm encouraged that one apparently now exists. Of course mine included profitability and market share. It's unclear whether this one does. I had also suggested that each business unit be forced to report their scorecard at the Company meeting. There's nothing like the peer pressure of thousands of fellow employees/shareholders when you say, reveal that you lost another $1B and got your ass kicked by Nintendo - not that I'm singling out any group in particular, you understand. Still, it's encouraging that a consistent competitive scorecard now exists and that Ballmer et al resisted the normal urge to color all boxes green (assuming green is good). As I posted recently, a big problem for MSFT in the investor community is its refusal to acknowledge the many, many, mistakes and failures that have occurred this decade. Former hedge-fund manager and TV personality Jim Cramer captures this external perception nicely with this: "Microsoft, other than aQuantive, feels it's better at everything than anyone," Cramer said. "Maybe it was at one time. But that's a terrible amount of hubris to run a company with." In my view, Ballmer's credibility would actually be enhanced by being more forthright and self-critical publicly. After all, it's not like the mistakes and failures aren't readily apparent to all. So the real concern is that management is blind to them and/or not focused on fixing them. To that end, will shareholders see the scorecard -or at least a sanitized version - along with a candid discussion at the upcoming meeting? Don't hold your breath. Getting back to Mini's post, I took a look through the comments. While some didn't like Ballmer's speech: SteveB speech was a big drag. What eloquence! Several others - Mini included - apparently did. What really struck me though, were the number of comments where purported employees were still looking for Ballmer to solve the company's many problems. For example: I loved the meeting, and now my after thoughts - if Steve Ballmer was able to get that speech plugged into the org, to get that vision to drive the company, most of all the division I work for, then he's the greatest CEO on earth (that I know of), if not, he's just a pretty good speaker. Many of you bash Ballmer, but I wonder whether his insistence at staying is because he realizes the 4 frat boy cheerleaders he has reporting to him are paper pushers. I hope that's the case, I hope he's just waiting for someone more inspiring to show up and then turn things over. The first one claims to be from a [former] AQNT employee. So in that case, I can unde[...]
Thu, 30 Aug 2007 16:28:00 +0000For some time now, I've been watching MSFT's laughable execution and downward spiral. I'm not talking about revenue, where the near-monopolies have proved strong enough that even this management team haven't been able to screw them up beyond modest growth rates. Or profits, where their anti-Midas touch has had more detrimental impact, but still not enough to throttle gains completely. I'm talking about the now almost institutionalized missed ship dates (the latest btw being Server 2008, which I believe makes for a delay on every major product release this year), largely uninspired products, endless gaffes, and of course investments that only bring losses, to name just a few. As incredulous as I've been over this performance, I've been even more amazed by MSFT shareholders. While owners of other companies (most with far better track records than Microsoft this decade) have mounted serious campaigns to replace their leadership teams and Boards, MSFT shareholders have been largely silent. Indeed, the nascent pressure that was building for Ballmer's ouster 2-3 years ago has largely dissipated. MSFT shareholders are a binary lot, it seems. They either vote with their feet and sell (as they have for the past 5 years), or continue to hold and suffer in silence. And, of course, there's always the current leadership team telling us how super-fantastic everything is, or soon will be at least, while leading the market in insider selling. I tell you, sometimes it's enough for even me to question whether my perception of the company is accurate. But then I look at the stock price, or drop by Mini-Microsoft, and know that my view and that of the rest of the world is largely simpatico. Still, it's always nice to get corroboration. Which brings me to an article courtesy of David Hunter's Microsoft News Tracker site:Of Microsoft, china pigs and hungry bearsSome excerpts:In 2017, what and how big will Microsoft's major revenue streams be? Even discounting hindsight, that's a lot harder to answer than the same question ten years ago: As Vista has proven, XP is good enough: that wasn't the case for Windows 95 or NT.Check.So Microsoft is a huge company with a fuzzy future. In many respects, it's underperforming, if not stalled. Double check.The company has huge stockpiles of cash, no debt, an enormous and predictable cash flow – and almost entirely stagnant growth prospects. It's got so much money it can lose tens of billions on a new project like the Xbox, and still keep the thing going. It can take five years to produce an update when its competitors are doing it every six months, and nobody cares. It has one mode of operation, and that's to charge ahead like a stegosaurus: its upper management, plentiful enough by themselves to populate an entire Jurassic landscape, rarely show signs of evolved thinking. When was the last time Microsoft surprised you with an unexpected sparkle of intelligence?Triple Check, although I strongly disagree with the "almost entirely stagnant growth prospects". At the risk of being overly simplistic, if you find new and innovative ways to save customers money, make them more competitive, or even entertain them, you can sell them more and grow nicely. If you largely sit on your ass and subject them to wave after wave of often marginal upgrades out of some delusional sense of entitlement, you can't. Is the former easy? No. Is it possible and routinely done by others? Yes. Oh, and for me it was sometime in the late 1990's for that question at the end there.There are huge savin[...]
Tue, 21 Aug 2007 18:03:00 +0000As shareholders we all want MSFT's "investments" to pay off. The company obviously can't live on just its legacy cash cows forever. New accretive investments offer the potential for not just keeping the company strong, but also [finally] accelerating earnings.Unfortunately, as per my last post, most haven't over the past decade. Sure, they've taken the up-front cash required by most investments - way more than most in fact. It's that niggling little thing called profit, or shareholder value created, that's proven elusive for the current leadership team. Which is why we now get CFO Liddell belatedly telling us that we shouldn't look for normal internal rates of return from these efforts like at other companies. MSFT "investments", you see, are special. They don't follow normal convention. Instead, they are "winners-take-all" events. MSFT is swinging for the fences; They're not interested in mere base hits. And all those apparent strikeouts so far? Well, they're hoping the game goes into extra innings.Let's examine how this has worked out in just one area - virtualization. Back in 2003, in a uncharacteristically non-laggard move, MSFT bought the virtualization guts from Connectix. Since that time, they've done what they often do after making an acquisition: buried it in bureaucracy, forced it to be a cog in some massive overall strategic architecture plan, and continued pouring cash into it. The result? According to Trip Chowdhry, senior software analyst at Global Equities Research:The Redmond, Wash.-based software giant has 'been a total failure when it comes to virtualization'.Tell us what you really think, Trip. Sadly, that's accurate. Meanwhile, EMC was busy buying a small software company. When asked about it now, they indicate that their go-in expectations were rather modest; They were just looking for a base hit. That company was VMware, acquired by EMC back in 2004 for $625M. On August 14th, 2007, following an IPO for VMware, EMC's remaining 85.6% stake was worth $16B (even more now btw, with total marketcap approaching $27B). And that's after already receiving $218.5M and $150M from INTC and CSCO respectively for a piece of the action. In other words, for just $625M, EMC (primarily a hardware vendor) managed to buy a software company - a year after MSFT's entry into the segment - and still generate more shareholder value in just three years than MSFT (the world's largest software company) has generated from all of its investments combined over the last decade, with the possible exception of Server and Tools (although that's predates a decade). Oh, and did I mention that along the way VMware has been profitable (something this and other equivalent MSFT efforts almost never are) AND is the category leader despite MSFT's best efforts to unseat them in what even senior management concede is an increasing strategic area? BTW, for more on VMware see here:VMware: EMC Has No Plans To Sell More; Did They Price Too Low?MSFT is a large company and it's reasonable to assume that some opportunities are too small to be pursued because they won't "move the needle" in a meaningful way. However, the current strategy of eschewing base hits for home runs clearly hasn't worked either. The latter have mostly turned into strikeouts, either clearly or soon-to-be. Meanwhile, a few decent base hits like VMware in MSFT supposed core area of expertise (software) -and a strategic one at that - could have put up numbers meaningful even to a company of its size. And in this case i[...]
Fri, 10 Aug 2007 20:11:00 +0000That's a question many are asking wrt MSFT. Before trying to answer it let's establish some basic facts, especially since MSFT's current management often work hard to ignore them when they're unflattering (Warning: Long. If you have a more limited attention span and accept a "fact", you can pretty much skip to the next).1) Fact: Microsoft stock has performed abysmally over the past 5 years I know, not exactly "news" if you've held this stock for more than a year or two. Still, given current management's refusal to acknowledge it and Ballmer's recent asinine comment that "a lot has gone very well for shareholders over the past five years", I feel compelled to state and support it.First, during Ballmer's reign as CEO, more shareholder value has been destroyed than was lost by Worldcom, Enron, Tyco and Lucent shareholders combined. Second, for those who want to cut him some slack given the market meltdown in 2000/2001, let's look at performance since and relative to other industry players. One of my first posts was a recap of a 2004 presentation by John Connors (then CFO of Microsoft). It showed MS's financial results relative to peers during the period 2001-2004. While there was some merit to that compare, it was undercut by the fact that MSFT, the stock, had under performed not one but all of those entities during that same period - a point I made at the time. Flash forward to 2007, and again management is trying to play the "fundamentals" card because the stock has continued to under perform all of these except Sony (note: this and subsequent compares are dividend excluded and use the recent fiscal year-end as the period close). I included a chart in my last post which showed the past five years versus some of them. Since it's difficult to read, here's a breakdown that is complete and adds some additional peers/market indexes (note: data is for the past 5 fiscal years, %'s are approximate - I eyeballed them from the chart - and don't include dividends):MSFT 8%DELL 10%INTC 22%IBM 43%SPY 52% (S&P tracking stock)QQQQ 80% (NASDAQ tracking stock)NOK 85%ORCL 98%CSCO 100%SAP 119%SNE -3% (SONY)CRM 170% (Salesforce.com)HPQ 175%YHOO 300%GOOG 380%AAPL 1200%FYI, the ones in blue are the companies Microsoft originally chose to compare themselves to back in 2004, in what was already a self-serving list. If you add the peers that should have been included then and now - INTC, GOOG, AAPL, CRM, YHOO, the S&P, and NASDAQ - the under performance by MS is that much worse. In other words, the truth is that things have gone very poorly for shareholders over the past 5+ years by the only measure that ultimately matters - stock performance. 2) Fact: Investors have been more than patientBallmer explicitly and implicitly stated at the recent FAM that investors have too short a time frame. He mentioned "three years" and suggested that more patience was required. As seen from the discussion above, three years came and went a long time ago. In fact, all "blue" names above except SNE have now outperformed MSFT over the past ten years (fiscal year-end close, dividends out). Ditto CRM, HPQ, YHOO, GOOG, and AAPL. If anything, investors have been too patient.3) Fact: Management's statements are at odds with observable facts and the stock's performancePublicly, management maintains that everything is going fantastically. They do this in many cases regardless of observable conflicting data. For example, "A lot has gone very well for shareholders over the past 5 y[...]
Thu, 26 Jul 2007 22:20:00 +0000That's the effective message Ballmer et al delivered at today's Financial Analyst Meeting. BTW, the market decided to go with the "leave us" option, although it's up a bit in after hours:Before you say, "But hey, the market was down too". It was. However, most stocks rally on presentations to the financial community. After all, the objective of the exercise is to provide that group with greater insight into management's thinking and strategy, thereby making them more confident, not less. I would also remind you that the exact same thing happened last year. Finally, I would point out the large volume (~88M shares) and significant end of day selling (red): I was originally going to cover the FAM in detail, but on reflection why bother? Most of it was the same tired, old, self-serving drivel we've heard before. And yet the current management team still thinks that maybe, just maybe, someone will buy it.The stupidity can be summed up in this statement by Ballmer, which came early in his speech:If you take a look over the last five years, a lot has gone very well from a shareholder perspective. He went on to discuss revenue and earnings growth over this particular time period, which of course avoids highlighting the rapid ramp in costs during the past three years (the period, incidentally, that he used when referring to shareholders with [implicitly] too short of an expectation time frame). While Ballmer deserves some kudos for top line growth and - much less so - bottom line earnings during this time frame, the ultimate test for investors is how the stock did. As per usual, Ballmer omitted that little gem. So let's fill in the missing data point: BTW, that's sans dividends. With dividends (including the one-time $3 fiasco), it would be another 14-15% higher. So call it just a 60% under performance versus the NASDAQ (although the QQQQ's, for example, pay dividends as well). Maybe it did better versus its peers? Let's check:Er, nope (that's MSFT at the very bottom btw). It boggles the mind that the CEO of a company whose stock has chronically underperformed the index and its peers by that magnitude, and is currently trailing the NASDAQ by almost 7% YTD (in this its major product release year), can actually stand on stage in front of investors/analysts and claim that "a lot has gone very well from a shareholders perspective". Even more incredulous is that not one of them called "bullshit!".I'll at least give credit to CFO Liddell for doing what no senior MSFT executive has done in recent history, and that's mention the stock proactively: Probably of more interest at the end of the day is what that looked like from a shareholder point of view, and that translated into the total shareholder return of 28 percent for the year. Of course, it was also self-serving and primarily reflects how badly MSFT had crashed the year previously following Ballmer's now infamous spending surprise - a point that Liddell semi-acknowledged:And, obviously, some of you will say, Well, it was at a low point last year, I could have gone back two years, and it would have been around 25 percent.BTW, my math for the past two years - again, sans dividends - is more like 19% (~22% with). Unfortunately, having won some points by mentioning the stock, Liddell descends into the same self-serving nonsense as everyone else:But measure it however you like, last year was the best financial year from a shareholder perspective that we've had this dec[...]
Thu, 19 Jul 2007 15:43:00 +0000I'm tied up today and don't expect to post much on earnings this time around. The Xbox charge will blow earnings for both the quarter and the year, so that pretty much negates any anticipation for a "blowout". That said, Ballmer's recent public comments have had a certain unmistakable swagger. So expect the rest of the business to have done quite well. No doubt the company - and analysts with buy recommendations and/or investment banking relationships - will do their best to present the results in that light. Specifically, look for numerous references to "excluding the charge, EPS would have been...". While there's some merit to that wrt understanding how the rest of the business did, the reality is that rightly or wrongly (it's clearly wrongly btw) Xbox is part of MSFT's overall business now. In fact it's a significant part, especially for top line revenue and revenue growth. So excluding that charge is a bit like saying "the date went really well except for the part where I got drunk, spilled a glass of red wine all over her new dress, and she slapped me in the face".The major focus, of course, will be on anything that gives a sense of how Vista is doing (answer: not nearly as well as it should be, all company rhetoric aside) and of course guidance for the year. Again, listening to the swagger coming out of Ballmer, Witts (who incidentally rivals Liddell for B-O-R-I-N-G) and others at the recent partner meeting, they seem to be very optimistic about FY08 - at least for now. So I don't anticipate any negative change to previous guidance. There's even a chance they could raise it slightly.WRT the stock, it has suddenly reversed course and been surprising strong after tracking near perfectly against my earlier $28's downside forecast. Not sure what to make of that, except possibly that those comments coming out of the partner meeting caused the street to jump the gun and buy heading into earnings. Hopefully, there are enough positives on the conference call - or at least absence of negatives - that we avoid a post earnings selloff like INTC experienced. Of course, INTC had nicely outperformed the NASDAQ on the year heading into that, whereas MSFT - even given the recent strength, and in this, its major new product year - is still lagging it by more than 6%. So we'll see.Pre-earnings:Microsoft Xbox Repairs May Cut Fourth-Quarter Gain (Update1) [I like the "may" part]Microsoft Q4 earnings preview, Xbox could hit revenue [ditto "could"; It's 7-8 cents after-tax people]All eyes look to Vista as Microsoft reportsMicrosoft earnings today: Xbox 360, Windows VistaPost-earnings and conference call:So,PC growth was stronger than expected (by a full 1%)Foreign exchange helped revenue (by a full 2%)"Each business grew revenue at double-digit rates at the high-end of our guidance"The Windows premium mix did better than expected (up 17% to 72%)MBD revenue was up 19% versus guidance of 13-14%Enterprise agreement renewals exceeded the historic range of 66-76%Dynamics bookings were up 24% (not great vs Salesforce.com, but better than normal)They sold 400K less Xbox consoles (thereby avoiding the loss per unit * 400K)243M shares were bought back on the Q for $7B+ (thereby boosting EPS)Headcount growth came in lighter than usual (again, should have helped income even though it's still excessive at ~10%)And...MSFT only managed to meet street expectations on EPS. Huh? Hey, I only report the stuff. I[...]