3 O'Clock High: Microsoft's Microshock
Is DeNile a river in Washington State?
In a speech Friday, Bill Gates suggested that the sell-off was the result of Nervous Nabobs of Negativity unable to grasp the vision behind an announced ramp in R&D Spending. "Some people [Bill and Steve Ballmer] are very enthused about those investments. Others [Wall Street] were wondering why we think we need to invest so much. It really comes back to the optimism we have about these advancements."
This echoed the words of Rick Sherlund from Goldman Sachs (GS) who wrote that "investors are unresolved on what the benefits might be of this radical acceleration in spending." Sherlund made his analyst bones covering Microsoft since I was in grade school and has long been assumed to be extremely "well connected" in Redmond, suggesting that Gates was getting help on his interpretation of the meaning behind Mr. Market's thug-smacking of MSFT from Sherlund himself.
In any event, and with all due respect to a sharp analyst and The Richest Man on Earth, it's wildly optimistic to consider Friday's reaction to the Microsoft quarter to be a case of the Street second-guessing the aggression of MSFT's investments in tech. Microsoft and Gates would like to think the Street was simply doubting their vision. "They thought we were crazy when we took on IBM" you can imagine Gates saying, "We're going to shock the world again!"
The comments suggest an utter lack of self-awareness at Microsoft. It suggests the company believes all is well, save for the myopia of Wall Street. The truth is much worse. Microsoft hasn't hit a release deadline for any major project in years. The company has been ham-fistedly branching into the consumer space via cable and games, buying market share in an assortment of areas with an abstract plan to tie it all together in a (presumably VERY lucrative) "home entertainment" package at some point in the future. In the meantime, the crown jewels of the Empire, the operating system, has been unfathomably delayed for years.
Microsoft blames delays in both the OS and Xbox360 on the "complexity" of the products.
- Microsoft has become everything they once existed to fight: a slow-witted Goliath unable to adapt but too large to simply fall down and die. They are IBM, circa 1985.
- Microsoft's stock is doing the same investor-shivving grind as fellow Dow Blue-Chip, Wal-Mart (WMT).
- There was something strange and probably options related (nice work, Succo & Warner!) about the magnitude of Friday's drop.
- Microsoft was a dead-line missing train-wreck of an operator before the call on Friday... the difficulties in gaming when a stock goes where it "should" have been all along is what makes beloved stocks like Wal-Mart and Microsoft so maddening. They are nightmare shorts and IRA-vaporizing longs.
- I think Microsoft is Big Picture Dead Money at least until the execs demonstrate the realization that they have a problem which can't be solved by dumping money on it.
New York, New York
Great times last week in NYC, doing the show and Mind-Melding with Todd-O. I gotta level with you Minyans, it's been deeply strange and a little dizzying to find myself jumping from coast to coast each week. Obviously, the schedule has made finding a groove regularly writing about stocks in this space challenging.
I'll be sharing more on the process and what, exactly, I've been up to lately in the coming days. For now, suffice it to say that dinner and cocktails with T were just what the mojo doctor ordered for me personally. In terms of my scribing, I remain and intend to ever-be a Minyan in both Spirit and Function.
So thanks for hanging in with me.
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