Posts filed under “Technology”
My expectations are that the chattering classes will be all over Microsoft’s buyback announcement: A $20 billion tender offer for up to 808 million shares (8.1% of the common outstanding). It a Dutch auction running until August 17th. The price range is 22.50 to $24.75. There was an additional authorization for as much as $20 billion more in buybacks through 2011. In after hours trading, the stock popped 5.5% to $24.11.
The 24% fall in net was blamed on Legal costs — of course, those
costs are not as innocent as the IR spin makes it sound; they are the direct result of
management’s bad behaviors.
I am a big believer in variant perception: trying to identify what the
crowd either doesn’t know or is overlooking. My take on big cap tech,
on why the previous bull market stars don’t lead are examples of this.
So what is the variant perception of the Microsoft buyback? We know Mister Softee has been a cash cow, we also note that since their prior $32 billion special dividend, the stock has dropped about 25%. So this time, the thinking went, lets try to financially engineer the stock price higher and reduce the past decades’ stock option dilution.
To me, this as an admission of defeat. In Redmond, the thinking apparently is "We simply don’t know what the hell to do with all of our cash." Outside of Windows and Office, just about everything else they have tried is a bust. SQL Server database can be called a successful moneymaker, but that’s where it more or less ends. Even X-Box — very successful in terms of unit sales — is a giant money loser.
Every other initiative, project and concept is, to use the more polite phrase, "borrowed." Microsoft is like the rich kid at school trying to buy their way into the cool clique. I still find it astonishing that people call these guys innovators.
Consider the "innovations" they have piled up recently:
• Search (Yahoo, Google)
• Xbox (Sony, Nintendo)
• MSN Spaces (Blogger, Typead)
• MSN VIdeo (You Tube, Google Video)
• The new Microsoft "iPod" (Apple, Creative)
(feel free to list your own favorite MSFT "innovations" in comments)
Hell, even the Dutch auction stock buyback was copied from Google.
As the worlds activity and focus moves from the desktop to the internet, they are hard pressed to keep up. The internet is in a veritable Cambrian explosion of new life forms. I don’t believe the future belongs to YouTube or My Space or Google — but to all of the creative and innovative companies, incrementally experimenting, expanding, and creating new ideas and programs on the internet.
Microsoft just ain’t one of them.
UPDATE: July 21, 2006 1:15pm
A few items from comments worth highlighting:
"Want to unlock Microsoft’s potential? Instead of buying stock to prop
up the price, have the company spin off the different businesses into
their own wholly owned subsidiaries and make them compete and turn a
profit or die."
Sounds about right to me: Stake the businesses with some cash, and set them free by spinning them off to shareholders to compete in the marketplace (while still owning 50% of them)
Oh, and by the way: its worth noting that Oracle is making 52 week highs today !
Profit Lags as Microsoft Spends to Meet Competitors
NYTimes, July 21, 2006
Microsoft Net Falls Amid Legal Costs
Investors Are Cheered As Purse Strings Loosen For Share-Buyback Plan
ROBERT A. GUTH
WSJ, July 21, 2006; Page A3
How cool is this?
Websites as graphs displays your website as a graph of colored, connected dots representing the various HTML entities.
Below is a graph of the Big Picture:
After the jump, I grabbed a bunch of other sites for comparison purposes:
I frequently discuss Microsoft, and for many many reasons: They are a tech bellwether, a huge part of the S&P and Nasdaq 100 (and a smaller part of the Dow). They have also been a thorn in the side of new technology development and innovation, but now that so much of it has moved to the web, its gotten away from them.
This is a good thing.
One of the commenters said some time ago that I was "irrational in my hatred for Microsoft." That’s hardly the case; Microsoft has put a lot of cash in my pocket, so at worst, I should be grateful to them for the windfall.
However, I am still an objective observer, and I believe that Mister Softee is not what most investors think it is: They are hardly innovators; rather, they copy other people’s work relentlessly, until by default they own the standard. Their products are kludgy, bloated and anti-instinctive; They are hardly the elegant, easy to use software first dreampt up by science fiction writers decades ago.
From an investing standpoint, their fastest growth days are behind
them, yet they are hardly a value stock — yet. (Cody and I have disagreed about this for some time). The leaders of the last bull Market are rarely the leaders of the next. Despite this, Wall Street still loves
them, with 28 of
are widely owned by active mutual fund managers and closet Indexers.
Many people think of them as this well run money machine; In reality, they are very poorly managed by a group of techno-nerds with very little in the way of management skills. Even their vaunted money making abilities are profoundly misunderstood: Its primarily their monopolies in Operating Systems (Windows) and Productivity Software (Office) that generates the vast majority of their revenue and profits. Their Server software and SQL Database make money, but hardly the big bucks of Windows or Office. MSN is a loser, MSNBC is a dud, their Windows CE is hardly a barn burner — even X-Box has cost them billions more than it is likely to generate in profits over the next 5 years.
Lest you think its just me who thinks this way, consider no less an authority than Robert X. Cringely. He is the author of the best-selling book Accidental Empires (How the Boys of Silicon Valley Make Their Millions, Battle Foreign Competition, and Still Can’t Get a Date). He has starred in several PBS specials, including Triumph of the Nerds: A history of the PC industry.
After Gates resignation, Cringely wrote this:
"Microsoft is in crisis, and crises sometimes demand bold action. The company is demoralized, and most assuredly HAS seen its best days in terms of market
dominance. In short, being Microsoft isn’t fun anymore, which probably means that being Bill Gates isn’t fun anymore, either. But that, alone, is not reason enough for Gates to leave. Whether he instigated the change or someone else did, Gates had no choice but to take this action to support the value of his own Microsoft shares.
Let me explain through an illustration. Here’s how Jeff Angus described Microsoft in an earlier age in his brilliant business book, Managing by Baseball:
"When I worked for a few years at Microsoft Corporation in the early ’80s, the company had no decision-making rules whatsoever. Almost none of its managers had management training, and few had even a shred of management aptitude. When it came to what looked like less important decisions, most just guessed. When it came to the more important ones, they typically tried to model their choices on powerful people above them in the hierarchy. Almost nothing operational was written down…The tragedy wasn’t that so many poor decisions got made — as a functional monopoly, Microsoft had the cash flow to insulate itself from the most severe consequences — but that no one cared to track and codify past failures as a way to help managers create guidelines of paths to follow and avoid."
Fine, you say, but that was Microsoft more than 20 years ago. How about today?
Nothing has changed except that the company is 10 times bigger, which means it is 10 times more screwed-up.