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February 15, 2007

Microsoft and Ballmer: We're Whiffing On Vista, Baby

So Steve Ballmer comes out with a little early warning of a pending whiff in 2008. But here is how he frames it to the analyst community - "Woo hoo - 2008 Operating Expenses will be lower than expected" (shouting at the crowd). "Uh, and maybe the analyst numbers for 2008 Vista revenues are too damn high" (whispering into his coffee cup). Are you kidding me, Steve? I know your regard for sell-side analysts is pretty low, but don't you think they're a little smarter than that? Not to put words in Steve's mouth, here is what he actually said (from Reuters via Yahoo! News):

SEATTLE (Reuters) - Microsoft Corp. (Nasdaq:MSFT - news) Chief Executive Steve Ballmer on Thursday forecast that fiscal 2008 operating expenses would be "somewhat less" than the previous year, likely a bit below $2.7 billion.

"We will have moderating growth in operating expenses next year but I wouldn't expect a huge drop," Ballmer said in a presentation to analysts.

Ballmer also said that analysts' forecasts for Windows Vista revenue in 2008 were "overly aggressive" and that the world's biggest software maker expected to do "more of the same" with regard to cash.

He added that the company was willing to spend money to acquire online customers as the company battles for share against rival Google Inc. (Nasdaq:GOOG - news).

Ok, so in english, what I hear Steve really saying is:

  1. 2008 Vista revenues will not meet expectations; therefore
  2. Microsoft will incur lower operating expenses, because we just aren't selling what we'd hoped; and
  3. Since we don't have many attractive ROI opportunities in our core businesses we'll continue to buy back gobs of stock; and finally
  4. We may need to further scramble in search and other means of online customer acquisition since we are continuing to get the crap kicked out of us by Google.

Does this sound about right? I think so. Just to re-visit a little history, I've been quite skeptical about my friends in Redmond for quite some time, or, rather, I've chronicled the Internet's growing cynicism concerning Microsoft's product strategy, their bloated and siloed culture and the challenges to innovation they've faced as a result of their desktop/software roots and a mind-set to match. This is just not a pretty picture. Just look at the bolded words above. And less to say "I told you so" than to provide a resource for those interested in getting deeper into the Information Arbitrage  approach to analyzing Microsoft, please consider the following:

02/05/2007: Microsoft Revisited: Vista, Apple and the Sony/Nintendo Phenomenon

12/12/2006: Microsoft vs. Apple: Is Vista the Answer in the Era of Consumer Computing?

12/10/2006: Microsoft: Dazed and Confused

08/10/2006: Schumpeter and Search

I hope you find this information useful. Because the Internet has done a pretty good job of handicapping Microsoft for investors. It's just sad to see one of the great companies of a generation losing touch with their customer base, the dynamics of a shifting web-oriented world and the shackles of a hidebound culture that used to be the toast of corporations worldwide. How times have changed.

ADDENDUM

  1. From Paul Kedrosky - he has been all over MSFT/Vista problems from the beginning, including a particularly prescient OpEd piece in Tuesday's Wall Street Journal
  2. The WSJ coverage of the Ballmer/MSFT/Vista story

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