Thursday, October 21, 2004

Microsoft's Financial Horizon

Let's have some chart fun courtesy of Yahoo financial charts (not pretty, but the data is there)... first, just looking at share price increase, it's MSFT vs. GOOG:

Chart of Google shooting off like a rocket.

Ka-Pow! (Well, at least of this writing; the charts are live and all of this text might make zero sense relative to current financial trends [that would be nice].) Okay, the next contender: MSFT vs. AAPL:

Chart of Apple shooting off since September...

I really don't like being the horizon here in both cases. Now then, of course we're bringing in billions $USD while Google is in the millions. But they have momentum and their stock is going in a direction I'm damn well envious of. And Apple? Well, they are All That right now, aren't they, grooving silhouettes and all. During a special meeting with BillG & SteveB a while back, one of the Microsofties posed a concerned question about Apple and what we're doing to compete against their cool iPod this and iTunes that. BillG did a great reality check by observing, "Well, I wouldn't want to swap places with Apple." True. But, still... return on investment is looking pretty sweet right now. I'd swap that!

So Microsoft's earnings for Q1 of FY05 looks solid from the results perspective, but the future is not enthusing analysts.  From one report: (bold mine)

Analyst Jamie Friedman with Fulcrum Global Partners said the company's quarterly numbers looked fairly strong overall. But he said Wall Street would likely be concerned about the company's unearned revenue figures.

Those numbers, which reflect contracts that are signed but not entirely recognizable as revenue immediately, declined more sharply than he expected. That raises concerns the company doesn't have a major new product available to lure corporate customers into renewing long-term contracts.

Microsoft doesn't expect to ship a new version of its dominant Windows operating system until 2006, and the next big upgrade for its server product isn't expected until 2007.

"The company looks like it needs products," he said.

But Friedman also praised Microsoft for cutting costs, something executives have pledged to do as the years of explosive growth in the technology industry have waned.

Hell yeah, we need products. We need products real bad.

2006? Are we to wait until then to see the stock potentially move up in reaction to our ongoing Longhorn salvage operation? If you had to guess what the market's reaction is going to be to the next version of Windows when we finally, finally manage to give it the bums' rush, what would it be? My guess: zero reaction. What are we putting in there that is going to excite the user / analyst? Better security, more stability? Dude, are you telling me what I just bought from you is insecure and broken? And you want me to pay you to make it better?

All these technical improvements we meaningfully expound upon might make your everyday IT guy's nipples harden (mmm, USB-drive lock-out), but the analysts and consumers just hear ya-da-geekity-geek-not-worth-my-money-bing.

And as for praising our cost cutting, I guess that praise would fall a little short if details were provided regarding how we're reaching our $1,000,000,000 goal for FY05. It would look like a dance around the obvious: the best way to cut costs is to cut staff. Especially a lot of the dead wood filling the offices. Cuts now would invigorate the company, and enthuse the analysts about Microsoft's future.

11 comments:

Anonymous said...

GOOG is trading like a dot bomb stock, I don't think it is fair to compare MSFT against it. I do agree though that if you compare MSFT against most tech stocks both dotcomms (Yahoo, Amazon, eBay, Expedia) or more traditional companies (IBM, DELL, HPQ, RHAT) we aren't doing that impressively.

-- Dare

Anonymous said...

Why not look at another chart:

http://ichart.finance.yahoo.com/z?s=MSFT&t=my&l=on&z=m&q=l&c=AAPL

Anonymous said...

I'm not sure the dot-com/GOOG comparison is completely accurate, because one key difference is GOOG is making a profit. Not only that but Google's profit margins are huge. As I've explained before, I think Google has a very real long-term competitive advantage with its technology base, but more importantly, with its overall philosophy toward web applications. (Side note: I just discovered that typing in a stock symbol in Google gives you the Yahoo! Finance link for that stock as the first hit. That makes my life easier. No more hunting around Yahoo!'s site for the "finance" link.)

Let's look at Google Desktop Search for a second -- I find two things interesting about it. One -- assuming they can figure out the privacy/security concerns, Google has gotten itself yet another route that it could push ads down. When I wrote this comment, I had to actually launch desktop search to check that they haven't yet put ads in there -- they haven't. But if they can figure out a way to do it that doesn't involve sending my data to them, I wouldn't care if they did. Think about it -- advertising supported software that isn't annoying.

I think Google desktop search also says more about Microsoft than it says about Google. How long has Microsoft been trying to put search functionality that doesn't suck in the operating system, and how long have they failed? It's ridiculous -- I remember them talking about it back in my intern days about 8 or 9 years ago. I think Google may have just put it out there to underscore that the conventional wisdom that Microsoft just needs to "get some search technology" and it will crush Google is wrong. Search technology is only part of it -- Microsoft needs to deeply understand web applications in order to compete with Google. It's a philosophy thing.

Compare something like WinFS vs Google Search. WinFS is something only a computer scientist could love -- object oriented file system! The file system is a database! Complexity!

Meanwhile, the consumer doesn't really care about that! He just wants to search his hard drive fast. Google implemented the simplest possible system that would work, and to boot, it uses the same interface as normal Google, and is totally integrated. No talking dogs or paperclips or other crap that I don't want to deal with -- no opening files in some other application just to see what the hell they are.

Microsoft could have done this. They easily have the technical capacity to do so. This is what I mean when I say it is a philosophy thing -- I don't think Microsoft would have done something this simple. To them, adding desktop search means adding something like WinFS -- something most users don't care about, no matter how computer sciencey it is.

-vince

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Anita Rowland

Anonymous said...

The biggest driver in the drop in unearned revenue isn't the WIndows roamap--it's Office. Corporations get a new copy of Windows every time they buy a new PC (never mind that in many cases they re-image the machine to an older version).

But in the past, those companies have signed multi-year agreements for Office and they now look at what was delivered in Office 2003 and look ahead 3 years and just aren't seeing anything compelling.

They also look at the track record of delivering software within 3 years. Anyone who bought Software Assurance on SQL in 2001 is going to get stiffed because Microsoft won't be delivering an upgrade within the three year term.

I remember Ballmer getting up in front of customers and saying "three years is too far out for us to predict exactly what our software will look like." But it's not too far out to charge them for it? WTF?!?

me said...

'All these technical improvements we meaningfully expound upon might make your everyday IT guy's nipples harden (mmm, USB-drive lock-out), but the analysts and consumers just hear ya-da-geekity-geek-not-worth-my-money-bing.'

or, as Danny O'Brien once put it: 'Microsoft stuff continues to have its head stuck right up the ass of corporate America. One of my big bones with MS stuff is that it always makes me feel like I'm eating out of the trash bins outside a cubicle farm. All of their software is designed to help busy executives plan their lives. Everyone I know uses it to try and write birthday cards and chat with their friends.'

MattyDread said...

Gosh, that stock chart looks an awful lot like...a utility! A massive cash-generating monopoly that pays regular dividends. The financial community's made the adjustment. Will Microsoft?

Or will Microsoft prove Wall Street wrong with a raging hot new business like...Xbox? Paid search? Media Center PCs?

That said, Google's P/E ratio is totally ridiculous. And what's Apple going to do once everybody moves on from the iPod--become a full-blown consumer electronics company?

Anonymous said...

Thought experiment for the day. First, set aside Apple for a minute. OK, nice happy all-Windows universe. Now, have a company like Creative Labs develop a product that looks exactly like iPod and iTMS, and have it become a huge hit in the Windows space. H-P starts bundling it on their PC's and resells the Creative player in big numbers. Creative stock skyrockets.

In this alternate universe, would MSFT feel the urge to compete against Creative for this product sector? After all it's just one of Microsoft's many developers making a great Windows product and making Windows better.

It often seems to me that whenever something becomes a big deal in the business, MSFT wants to either control it or replace it. Is that an unfair assessment? Especially if one company starts making big profits and getting some power behind them.

christopher baus said...

> It often seems to me that whenever something becomes a big deal in the business, MSFT wants to either control it or replace it

Yes. That is a major problem with being a microsoft ISV. Is Microsoft a friend or foe? They want you to think they are your friend, that is until you become big enough to go after. Microsoft has a TERRIBLE track record with their ISVs. You could make a list a mile long of companies that have lived and died at the hands of Microsoft.

marty said...

MSFT is rather flat looking, especially in the vs GOOG chart. The current look in Sept 05 has a big bubble in it for GOOG while MSFT just keeps going merrily on.

Anonymous said...

stockmarketstudio.com or optonsXpress.com charts allow you to compare up to 5 symbols.