Thursday, October 28, 2010

Microsoft FY11Q1 Results

How about some FY11Q1 Microsoft earnings!

My usual suspects for earnings discussion:

Once more, with feeling.

I expect that we'll have yet another break-out quarter, a better idea that Kinect is poised to be a great seller for the holidays (sell-out pre-orders and screaming Oprah audiences can't be too wrong), and some glow from reasonable WP7 reviews (oh, and yes, we all realize that it doesn't have copy and paste - and yet the apocalypse will not arrive).

So this seems like a do-over with more good news from the last quarter. Will Wall Street react with the same "Meh?"

An interesting pre-earnings release article: Sleepy in Seattle - Microsoft learns to mature.

Again, not much love for Mr. Ballmer. So, since the last quarterly earnings, Ms. Friar at Goldman Sachs dropped a bomb on Microsoft and there's been serious concern that Mr. Ballmer is clearing the executive bench at Microsoft. Or is it cleaning house? Since we're unable to criticize any mistakes our departed leaders have made, it remains a big unknown.

iPad, iPad, iPad!

Once it was "Google, Google, Google." Now it's Apple's iPad meant to be Microsoft's undoing. First of all, major props to Apple's continued success. It's been a long journey for Steve Jobs and Apple - especially for those of us who read The Journey is the Reward back when it was new. I like my iPad. It's fun. It's also no notebook replacement. I'm not even going to use it for writing tweets on Twitter, let alone writing emails. It's for screwing around, and I like screwing around... so I like my iPad. I'm blessed that I've got the spare cash for such a luxury device and the spare time to play with it.

It's a new, quick consume experience that our Tablet vision failed to realize because our Tablet vision (like all visions of that time) was so firmly shoved up the Enterprise's butt we didn't care for consumers who'd pay good money to have a fun device to facilitate their screwing around.

We continue an expensive lesson in enlightenment. And spanking: Microsoft's consumer brand is dying.

And goodness help us if Apple TV takes off. Our inability to string together a coherent TV strategy (despite having been in the TV realm for over a decade) is yet another dropped pants embarrassment waiting to happen and represents the anxiety that Wall Street has about our future despite having successes in the present.


Cost cutting's slippery slope continues. I'm sure if we don't talk about continued overhead management (people, benefits, etc) that it will be an analyst question. I still believe we need to chuck about 15,000 positions (and half of our super-ballooned contingent staff) rather than continue the slow squeeze around the company that's making this an ordinary job with some extraordinary wonderful people who just haven't given up on the company. Yet. I hope that the analysts realize that continued, consistent bloodletting because a negative for hiring, and (allow me to be pro-hiring for a moment) if we can't bring in deep-talented new blood to replace the departed dead wood, our future is doomed to mediocrity.

And that doesn't get you a good dividend.

New Talent

And we're losing the battle for hiring new talent. If you review who we're losing to, it's a big surprise. You look at who is ahead of us in preference and you say, "Really? Graduating students think they are a better place to work than us?" It's a cold splash of reality that makes me - they guy who said we've turned things around and things are going great for our major initiatives - wonder if things are worse outside of the Microsoft bubble than I thought.

Frank, you're fighting an epic battle.

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Tuesday, October 19, 2010

Mr. Ray Ozzie and Microsoft's Chief Software Architect - So long, farewell, auf wiedersehen, adieu, adieu, adieu

A Microsoft position got retired this week: Chief Software Architect.

That used to be - quite unofficially - Mr. Bill Gates by the sheer nature of his intellect. And it led to many entertaining and terrifying BillG Reviews. A good friend of mine at the time, an architect for his team before we got all hung up about titles like that, bragged: "I've never been to a BillG review and I intend to retire without going through one." He did.

But I think he missed out. As have, unfortunately, many intellectually shallow PowerPoint B.S artists who rose up the ranks in the meantime.

When I was a teenager, one book I loved to contemplate over was a series of quotes by Robert Heinlein's character Lazarus Long. One goes like (courtesy the internet vs. hard-copy because the book is lost behind a stack of neglected Col Solare): "[...] Roman matrons used to say to their sons: 'Come back with your shield, or on it.' Later on, this custom declined. So did Rome."

The rigor of a focused, intellectually deep and sturdy software development declined with BillG's departure. No more technical assistants. No gauntlet of the BillG review. On his way out of the company, Bill anointed Ray to serve as Chief Software Architect. I don't think that was Ray's idea. In fact, I can only imagine him tilting his head and saying, "Wha-?" He didn't take a broad view of Microsoft at all, but rather focused on growing the Groove momentum into other areas for the future.

As part of any enduring legacy, it will be interesting to see what happens to Mr. Ozzie's groups over time, Windows Azure especially. And I can only hope to the Good Lord above that the "I'm all in" cloud claptrap takes a retirement, too. We get it. We have The Cloud as a platform. In my mind, it makes as much sense as saying "Compilers! We're all in!" or "Layered Windows! We're all in!"

I feel with Ray Ozzie's departure that Steve Ballmer has finally asserted his complete control over the company. We've had some house cleaning this year, ranging from Mr. Ozzie to Mr. Bach & Mr. Allard to Technical Fellows to continued targeted layoffs. Perhaps this is due to the big, contemplative review Mr. Ballmer had with the Microsoft Board this year. Mr. Ballmer has hit the reset button. Do we have a Hail Mary pass, or is this Ballmer 2.0?

We'll see how that goes. In the meantime, here's hoping that the technical Presidents reporting to Mr. Ballmer can take up the custom of intellectual rigor. Because that is one custom we can't let decline anymore.

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Sunday, October 10, 2010

Microsoft Health Care Pops a Cap in One Big Week

Wow, what got in the corporate water for this week? Coming off the glow of last week's Company Meeting Koolaid we first got hit by the Goldman Sachs downgrade hang-over, then, to channel Mr. Ballmer, "Boom-Boom-Boom!"

  • Health care changes on the way.
  • Live Labs gets shut down.
  • Technical Fellow Gary Flake, one of Microsoft few-TED stars, resigns.
  • Technical Fellow Brad Lovering leaves.
  • A survey that shows a lowly 50% approval rating for Mr. Ballmer.
  • IEB gets re-orged.
  • Massive gets shuttered (like we were all looking forward to billboard ads while blowing crap up in Xbox).
  • Adobe acquisition rumors.
  • Matt Rosoff leaves Directions on Microsoft.

All this right on the eve of Windows Phone 7 being launched. Feels like one big... purge.

As for the Microsoft health plan changes: I haven't personally taken a bunch of time to figure it out yet. I had a fully scheduled Friday and I half listened to the Town Hall while working. My attention lapsed and the next thing I know they are talking about a Health Visa card against our Health Savings Plan we can use for paying our share of a visit to the doctor and roll-overs and portability. I realized I just missed some detailed stuff. Microsoft has set-up internal forums to help the employees figure this all out, so I encourage everyone to utilize that. But in the meantime, a commenter on the previous post added this:

OK, I just watched the Health Care Town Hall replay. Hard thing to do early on a Saturday morning.

Let's see if I have this straight. If I go with the Health Savings Plan:

  1. All my preventive care is still free (to me). Annual physicals, dental checkups, immunizations, etc. - no charge. Wellness programs are actually beefed up even more.
  2. For a family of 3+, the most we would have to pay out of pocket annually is $2500.00.
  3. At the beginning of each year, MS will themselves add $3725 or thereabouts to my Health Savings MS is more than covering my $2500 obligation anyway.
  4. Even if I have a catastrophic illness or injury, I'm still ahead $1225.

I hope more insightful minds will follow up to correct any misunderstandings I have about this, but my takeaways from LisaB's deck are:

  1. Switch to HSP.
  2. Lose both legs in a snowboarding accident.
  3. Profit!

A follow-up to that:

Not quite right on the healthcare costs. Worse case scenario for family of 3 is:

  • All your preventive care costs are covered 100% by MSFT
  • You pay 100% of the first $3,750 in non-preventive costs. This is your deductible.
  • After your deductible is paid, you pay 10% of non-preventive costs. This is your co-pay. You pay a max of $2,500 in co-pays per year.
  • So your max annual costs are $3,750 + $2,500 = $6,250
  • MSFT will pay $2,500 into your Health Savings Account each year, so your net out of pocket cost is $3,750. If you sign up for the HSP account in 2011-2013, then MSFT will contribute an additional "early adopter incentive" of $1,250. But after 2013, your max out-of-pocket costs are presumably back to $3,750
  • You could pay that $3,750 out of tax-free contributions you make to your own HSA account, but then that money is locked away and can only be used for health expenses. If you don't want your money locked away then you have to pay with after-tax dollars.
  • In order to come up with $3,750 in after-tax dollars, you'll need to earn about $5,000 in pre-tax dollars.

So, in the worse-case scenario this is equivalent to a pay cut of $5,000 per year. Maybe not too bad for someone making $200k, but that would be a 10% pay cut for someone making $50k.

Will increasing health care costs follow Ms. Brummel's charted path? It's interesting that the excise portion of the future ended up being a small little bump. Next: wellness - excellent idea. I love ensuring that we're all well and stay healthy upfront. But that includes affecting the ecosystem in which we live and ensuring people actually put time towards preventative health and making a place like Redmond a healthy place to live.

Sidebar: Just to whine a bit: for self-proclaimed bicycle capital, this is one hell of a scary place to ride a bike. Actually ensuring there's an infrastructure from the suburbs-to-work to safely ride a bike to encourage healthy living is some local influence Microsoft should have.

Sidebar two: Via DareO: The exciting nature of being ordinary - Sorting it all Out - one snippet: "Microsoft now looks ordinary to me."

I'm very supportive of whatever they can do about wellness (though the paranoid side of me hasn't liked the 'Know Your Numbers' campaign - who gets access to my numbers? Curiously, this extra overhead might prevent me from getting my flu shot this year).

Do I think the health changes will affect recruiting? Probably not. Do I think it will affect retention? Yes. See the above "ordinary" link. If other tech companies hold steady on their coverage then they close a big gap to hiring experienced people at Microsoft. Look, once you have a family and one or two big boo-boos (medical term) you realize: "holy crap, we are so fortunate... I love this company for caring for me and my family so well!" It's no golden handcuff, but it still anchors you.

Anchors away.

Given cut-backs like this, whether out of cost-saving necessity or not, the Senior Leadership Team has to realize there's zero tolerance now for major money screw-ups like KIN and Massive. The bumbling flushing away of millions or billions of dollars is going to be compared directly to the reduction in benefits: if this company was actually run by people who knew how to consistently achieve profits, we wouldn't be looking at these losses and saying, "Yep, that could have paid for US health-care for a while..."

All-in-all, though, I think (not having immersed myself in the details) our coverage remains a better-than-average benefit. And as long as we don't have to revert back to the Pacific Care Primary Care / Referrals model (talk about a time-waster during work-hours) I'm personally satisfied.

Regarding Live Labs being shutdown: so what's left that Ray Ozzie is running? FUSE labs? You know, the people who blew their internal reputation by hijacking and hacking the Office Web Apps for ? I would not be surprised to see Ray finding a new endeavor sooner than later. First Mesh, now Live Labs.

As for Live Labs going into Bing... what the? I've watched a lot of curious hiring and initiatives at Bing. All the best wishes to you Bingsters, but you're beginning to resemble an organization that has way too many people and now you're just creating work to keep them busy. We've seen this before, and curiously, with some of the same leadership that's in Bing now. Better to put them on a productive profit making endeavor or risk having them cut loose.

From the comments:

Let's see if the latest round of "This will bolster the stock price works." IEB re-org and benefit changes. Doubt it.

Checked with some friends in the Interactive Entertainment Business and they glumly report "We're getting Sinofskied." (Not reporting to Sinofsky, but picking up the same kind of management structure.) Ah. I've always been curious if the Sinofsky model holds up in a creative group. Now we have one big example in the making.

Looping back to Mr. Kaplan's ordinary comment: Mr. Matt Rosoff's parting post on leaving Directions on Microsoft expresses it in a different way:

In Seattle, Microsoft was where the all the best and brightest worked, had worked, or wanted to work. People even pronounced it with a particular tone of voice, hushed but awful, like people back East say "Harvard." All-caps. "Yeah, he owns a coffee shop now. But he used to work at MICROSOFT." [...] it's not MICROSOFT anymore. It's just Microsoft. Even in Seattle.

How do you feel about that? You're not ordinary and you don't live an ordinary life. You don't expect to do ordinary work for an ordinary company, do you? What needs to change?

-- Comments

Wednesday, October 06, 2010

A Case of the Microsoft Downgrade Blues

Oh, great, we've hit a case of the downgrades as a sequel to the quarterly results that no-one bought.

Specifically, Ms. Friar at Goldman Sachs downgraded us with a variety of reasons and expectations. From Mr. Todd Bishop: Goldman downgrades Microsoft, makes case for major overhaul. Snippet of some gold Goldman Sachs from there:

Flashbacks to MSFTExtremeMakeover's last blog entry: Eight Years of Wrongness. Upgrade the "Eight" to a "Ten".

The more interesting follow-up by Mr. Bishop is adding up the numbers in Goldman Sachs' assessment comes up with a $30 share price vs. Goldman Sachs' downgrade to $28: Numbers How Goldman Sachs values each Microsoft division.

Now then, if this report was dated, say, 2006 I would be remarking at the exceptional smarts and bravery of Goldman Sachs to step forward from the meek institutional investor crowd that have been giving Microsoft a free ride. Instead, now that the farm's barn doors have been wide opened for a while, Ms. Friar is walking around saying "Without preventative re-enforcement and diligence of door utilization, it's possible for the horses to escape from here."

The timing is just peculiar, and is resulting in the resumption of resignation requests for Mr. Ballmer: CNBC's Fast Money Microsoft's Steve Ballmer Needs to Go Analyst. Also, Ms. Victoria Barret follows-up with Goldman to Microsoft Do Something - and reflects on her summer story Time to Break Up Microsoft.

Sorry Mr. Institutional Investor, your voice was needed years ago. You have been complicit and ineffective during the worst of it. What's the agenda here? It would have been better for a coalition of institutional investors to speak with one voice, vs. Goldman Sachs. Because... given how Goldman Sachs has proven itself untrustworthy in attempting to destroy the American economy for its own fortune (cue their extended pinky touching edge of mouth), you have to wonder if they have their own greedy agenda - are they betting against the Microsoft stock and expect to benefit from its near-term decline? Or hope to force in a Neutron-Jack CEO to wipe out half the employees and all non-profitable groups?

Or do they expect within a year for Microsoft to have had a very successful consumer cycle and then reward that with an upgrade, in the meantime having had bought up a good bit of cheap stock? Are they looking for quick short-term gains vs. a thoughtful consideration of long-term growth? I feel a baleful gaze cast on us.

And mainly: it's a very poor matter of timing for a break-up. We're about to have a mobile phone come out that actually binds the companies divisions far closer than ever before: Office, Windows Live, Xbox Live, Bing, and Dev Div: this damn thing is the antidote for break-up talk. WP7 wouldn't be impossible to create with a break-up, but it'd be exceptionally difficult. WP7 is pulling together huge resources that none of our direct competitors have.

Now then: stepping back to Classic-Mini mode. Would I like to spin off parts of Microsoft. Oh yes. Less money wasted and less people? It's a Win-Win two-fer. How about our health solutions group to start with? Other Fools: Online Services Division: Microsoft Time for a Break-Up?

I think it would be healthy to actually encourage spin offs. Give new groups funding for two years and then assess whether this will continue to be a Microsoft endeavor or not. If not, the group can spin off as their own new company, with Microsoft as a stake-holder, and go their own way. So if Midori is not in our future then tip the hat to them and let them take off on their own.

Back to Mr. Ballmer. If you want to end on a high-note, now's the time. Mr. Ballmer can declare victory in the continued success of Windows 7, the innovation of Bing that's rattled Google, the alignment of products around the cloud, Kinect, and Windows Phone 7. It's going to be a while until the stars set themselves up like this again. Better to go out with victory than be chased out of Salmonberg by a bunch of fed-up institutional investors wanting real dividends and stock performance. You know: shareholder value.

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