Friday, July 24, 2009

I ain't bothered!

In the last few weeks we heard some encouraging sounds about the economy. Some of the known bellwethers, Intel, IBM, and even some banks reported hefty profit* quarters. Apple reported stellar revenue and profit results on high demand for its iPhones (more than 5 million units moved last quarter).

One company that traditionally reported great numbers fell short this time, though. That's almighty Microsoft that has surpassed 61B in revenues in fiscal 2009 with an operating margin of 37% and change (source: Yahoo Financial). Ever since this crisis started Microsoft showed some serious cracks. (That's how the light comes in, as Cohen sings). Yesterday's analyst conference confirmed the trend. Sales down across all business lines. Is only the current crisis to blame? Or is there something more?

I am not a specialized analyst who follows Microsoft each step of the way, but I am a modest holder of their stock, so I follow them when I get the chance. And it bleeds my heart to see them performing on the investors market the way they do, for years now.

Usually, badly performing companies will first blame the economy. Microsofties use other excuses as well. Well, they say, even if we miss a quarter, we are still growing fast, and by the way, our quarterly profits are far bigger than what tens of millions of companies make in revenue in a year. Sheer Arrogance from the likes of Ballmer, God bless him.

How come then that Apple and IBM and Intel have recently started performing better, even in a down economy? Trust me dudes, there's two things: Innovation (vision and execution) and (Leadership) Management! Neither of that is present in Microsoft nowadays. All we hear are failures in everything they tried since living memory. How do you spell Zune? The iPod killer! Remember? How about Mobile Windows taking the world of mobile phones by storm? And recently? Mr. Bing is in town. Gimme a break! How about taking over Yahoo? Even that they proved incapable of closing...

Don't understand me wrong. I love Microsoft to my heart and I was one of their biggest supporters in the nineties. I used to work for their competitors but often mentioned them as a role model in my pitches. They were the shining path of software business. What's going wrong now then? Are they collapsing under their own weight? Is Bill's departure the key to this mess?

Microsoft is internally run like no other company I know. Like Swiss clockwork. Microsofties are still in love with their company. Senior management asks field ops to go an extra mile and they go ten. No shit! But, operational efficiency, motivation, culture alone and all that are still not enough to run a stellar company like them. Takes much more. Takes people like Gates... even better, people like Steve Jobs. People with vision and ability to inspire. Ballmer has none of that. Jumping up and down like a monkey only tells me that he's just fine to be sent to his peers in the Amazon forest. Not run a sophisticated company on the way to become a 100B dollars supplier of software and services.

I'll make a prediction. Apple is going to overtake Microsoft in market cap in my lifetime, hands down. They moved from being just a fraction of Microsoft's enterprise value to more than 60% per yesterday's close. And probably 62 to 63% by the end of the day today... due to their recent disaster announcements. As I reported in my yesterday's blog, in afterhours trading MSFT dropped by more than 8% at a certain point in time. Who knows what will bring the day today. I wouldn't be surprised to see them drop as much as 10% during the emotion hour! I mean, in a time with a shadow of euphoria about the economy bottoming up and a few faint signals about improvement, how does a maverick company that never reported bad numbers in the past, continue to disappoint like this? When will Microsoft's BoD (a.k.a William Gates III) eventually decide that Monkeyboy is good for nothing? About bleedin' time to change guard. Even a part-time Gates would do way better than bullheaded Ballmer...

In yesterday's Cranky Geeks Dvorak laughed at companies reporting more profits than a year ago when their revenues actually dropped... in other words, expenses dropped faster than revenues... how come? "Easy" sez John C. "They just fired herds of workers, that's why!". He may be right; on the other hand, if companies still deliver almost same revenues with less workers, that means that those laid off workers were (fat) ballast anyways... Why blame them companies for doing this then? They just did the right thing, didn't they? I remember working for CA once when this fat was in excess of 20% in my estimates. Count very much the same or more in most companies out there. The 91 thousand Microsofties may be too many to be any good to the company then.

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