At reader’s request: Microsoft’s financial disappointment
It almost feels like covering an old story, so herein we mention only a few new developments and reference the rest at the bottom.
As many have realised before the week ended, Microsoft is not in a good shape. It’s nothing like it used to be, but Microsoft goes out of its way to keep up appearances, even using aggression. Perceptual momentum is essential for growth through customer obedience and investor confidence.
“Ask what it is not telling you. It has plenty to conceal.”Just as predicted, Microsoft emhasised revenue, which the massive acquisitions make rather meaningless (buying revenue is easy at the expense of savings). Those who have read this site for a while might not be surprised, but the Microsoft-owned press can be hugely self-serving, i.e. deceiving. Contradictions to it can be painted black… like a black sheep that Big Lies make possible.
Microsoft shares fell sharply, just as they did in the previous quarter when profits fell and Microsoft was no longer able to pretend and conceal its pains. This marked the beginning of a stage where we are likely to see Microsoft’s estimates and forecasts lowered and then potentially missed again and again. Recall the fact that Microsoft lowered its projection in the last quarter (and missed them again).
When looking at the financial results, do not ask what Microsoft wants to show you and get journalists blinded by. Ask what it is not telling you. It has plenty to conceal. Being a large company, it can do a lot of division- and bucket-shuffling to impress investors. Here is just one old example: Microsoft Hides Its Mobile and Business Apps Divisions
The company is folding its two worst-performing divisions — Microsoft Business Solutions (its business applications unit) and its Mobile and Embedded units — into the Microsoft Business Division and Microsoft Home and Entertainment units, respectively.
For details about Microsoft’s financial game, see some of the many previous posts (listed at the very bottom).
Let’s take a quick look at some of the realistic (in-depth, as opposed to ‘Microsoft parroting’) press coverage that Microsoft received at the end of the week.
Shares of Microsoft Corp. dropped more than 6% in after-hours trading after the software giant posted a fiscal fourth-quarter profit that fell short of Wall Street’s estimates as it forecast lower-than-expected revenue for the following quarter.
According to an analyst quoted by The Street, Microsoft is “not doing well on the earnings front.”
Karen Finerman said that Microsoft was “a little disappointing,” and that she does not “love two quarters in a row of them being lower.”
Adami said that Microsoft’s major problem is that it does not tell what is going on. He said that it must “communicate with the Street better.”
Najarian said that Microsoft was “not doing well on the earnings front,” and “don’t buy this name thinking you’re going to get a monster pop.”
Buying lots and lots of companies (wasting money) for increase in revenue and employees just makes the company clumsy and overweight. John Dvorak opines that the strategy of the company as a whole is misguided and hubris-driven.
The secondary message, which we’ve all heard for some time now, is that the business model for the software giant is a dead end, if not over already
To make matters worse, the company is now making itself look more desperate over the new toy in the sandbox called Yahoo Inc.
We wrote about the Microsoft-Icahn duo before. They are now visibly united as they carry on with their planned proxy war. It does not help Microsoft in any way because it makes it look bad, never mind the distraction it causes.
In the latest salvo in the proxy fight for control of Yahoo, the company is urging shareholders to beware of the “odd couple” — Microsoft and the corporate raider Carl C. Icahn — who are locked in a “marriage of convenience” but have no clear plan for what they would do if they took control of the board.
Yahoo is now also using its Web space to attack Microsoft and Icahn, apart from describing the latter as a corporate agitator. It’s not good for business.
Even the Microsoft-associated financial Web site, Motley Fool, comes off with the headline: “Whither Microsoft?”
But the bears have a response or two ready. “Microsoft is currently too big to expand significantly above where they currently are,” says all-star Fool simultaneouslee. “Also, with Bill Gates no longer involved in Microsoft and the more eccentric Steve Ballmer running the show on his own, not as many investors will be inspired by Steve Ballmer’s visions for Microsoft as they were Gates.”
OK, so Microsoft is on sale right now — but perhaps with good reason. The company is facing unprecedented obstacles on every side.
In some ‘mainstream press’ articles, the economy as a whole takes the blame (Microsoft too tried to use that as an excuse). Examples:
It may run deeper than this. Consider some new observations, as follows.
The Online Unit does badly:
Shares in Microsoft were trading down 6.3% in after-hours trading at $25.78, after closing up 0.95% to 27.52.
Microsoft said earlier that its online services business lost $488 million, on sales of $838 million. In the year-earlier period, the online services business lost $210 million.
The entertainment unit too has some serious trouble ahead. Relative sales of XBox 360 fell sharply in the month of June and the company seems unlikely to recover, even with considerable discounts. The XBox division/unit has lost about $7 billion since 2001 and other products like the Zune seem to be approaching death.
I wonder why Steve Ballmer freaks out at the thought of losing the search and advertising wars to Google (Nasdaq: GOOG), but not at handing the game-console crown to Nintendo (OTC BB: NTDOY.PK) or the music market to Apple (Nasdaq: AAPL). How is it worth throwing billions after a major rival, only to scare away the engineering talent that makes (made?) Yahoo! great? In the second case, well, let’s just throw more bad money after that Zune abomination and hope the Xbox saves the day.
On the Microsoft Office division:
The Microsoft Office division numbers were a disappointment. Operating earnings there only grew a disappointing 12% for the period. The company’s online division posted an increase in revenue to $838 million from $677 million a year ago. However, losses for that division doubled to $488 million from $210 million, as management spent heavily on data centers and new employees to ramp up ad sales.
“Fear, uncertainty and doubt” are blamed also:
Citigroup analyst Brent Thill wrote Friday that the stock’s low price-to-earnings multiple reflects investors’ fear, uncertainty and doubt: fear that the product cycle will never deliver margin expansion, uncertainty that Microsoft will ever do a deal with Yahoo! and doubt that further online investments will pay off.
Lastly, The Ugly
As the links at the bottom will show, there’s a lot in Microsoft’s past about financial irregularity and misconduct as well. And fresh from the news:
Former manager gets 22 months in prison, fines for embezzling
Gudmundson was responsible for managing Microsoft’s domain names from 2000 to 2004.
Remember what Robert Bach, a Microsoft Vice President, did last year while escaping investigation or punishment.
And wait! Watch this newly-disclosed gem (Microsoft’s mortgage issue) from a source that is close to Microsoft:
In another surprise disclosure, Microsoft said its investments include mortgage-backed securities but they’re mostly “prime” mortgages and the portfolio is not directly exposed to the sub-prime meltdown:
“While we own certain mortgage and asset-backed fixed-income securities, our portfolio as of June 30, 2008, does not contain direct exposure to subprime mortgages or structured vehicles that derive their value from sub-prime collateral. The majority of the mortgage-backed securities are collateralized by prime residential mortgages and carry a 100% principal and interest guarantee, primarily from Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and Government National Mortgage Association. The remainder of the mortgage position is collateralized by high quality international prime residential mortgage loans.”
For more information, see our previous posts which are filled with many informative references handpicked from the press.
Criticism, if any, should be directed at the sources, not the messengers. The truth will come out one day. █
“Sadly, many of these brilliant people have been blinded by the stock price and unable to see that Microsoft is also the key architect of the greatest financial pyramid scheme this century.
“It is not uncommon for participants in pyramid schemes to lose their emotional bearings. My close friends who work at Microsoft are particularly upset over my work and it is possible that even Bill Gates and Steve Ballmer do not realize the implications of their financial practices.”
“Microsoft has clearly entered a phase of self destructive behavior that began with the “tissue paper campaign” in 1995. This report will document this campaign for the first time.”
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“That would be because we believe in Free Software and doing the right thing (a practice you appear to have given up on). Maybe it is time the term ‘open source’ also did the decent thing and died out with you.”
–Alan Cox to Eric Raymond
icrosoft and Openness is like the opening of a bank account. To Microsoft, what’s known as “Openness” (not Freedom) is just a business model, designed to ensure increase or at least maintenance of precious revenue streams. It’s hardly about permitting fair competition; rather, it’s a case of marketing, as Tim Bray recently emphasised.
As we showed yesterday, Microsoft is stuffing while Alex brown is bluffing for a good reason or two. The following brilliant analysis from Groklaw adds some more possible motives:
Bottom line to me? I think Microsoft sees a way to make some money with ODF, but it wants to change it to suit its own needs better. It didn’t participate in the ODF process, although it was free to suggest anything it wanted. Now, when it looks like the world really does want ODF instead of OOXML, surrogates are sending a dual message — first, that ODF has won, so OOXML isn’t worth fighting any more (and anyone who does is an “extremist” anti-Microsoft whiner), and two, that OASIS isn’t able to do a good job with ODF, so the same folks who brought you OOXML should take it over.
Because Microsoft’s not done until ODF won’t run? By that I mean, run as it does. They are not meeting for nothing, in my opinion. It’s not busywork. There is an agenda, no longer quite so hidden. It’s the opening part of the effort to take over ODF control, I think, so Microsoft can make it less open, probably, so as to make buckets of money from it, without Microsoft having to actually be open. On that page on What is Rick Smoking?, you’ll find a list of who was to go to the meeting of this advisory group, and a commenter says, “So a quick tally shows that there will be 25 participants, of which 12 are Ecma TC45 members (as listed) or Microsoft employees (Brett Roberts, Dave Welsh, Jasper Bojsen, Kimmo Bergius, Shahzad Rana and Wemba Opota).”
Get the picture? Is that who you want in charge of ODF?
The denialists and revisionists from ISO have already tried to hide and rewrite what had happened. They potentially hope to repeat history and destroy ODF (or OASIS), too. They’ll face opposition, which they try to neutralise by being coy.
On a brighter note, Charles had this encouraging news to share: “Adobe’s sequel to Buzzword, the most elegant online word processor, is not just fully integrated into Adobe’s latest online services. It does export to ODF!”
Erwin has some more fantastic news. [via Bob Sutor]
Due to my past involvement in OpenOffice.org and ODF, I was curious to find out if and where the SAP products already support the ISO standard OpenDocument Format. I was happily surprised when I found out that ODF is already supported by the SAP List Viewer component (also known as the ABAP List Viewer or ALV), which is used many many times in all kinds of areas for displaying tabular data in a grid. The SAP List Viewer component allows exporting to ODF spreadsheet files in addition to Microsoft Excel files. This feature is available on systems with release numbers 6.40 and higher and works for all 3 members of the SAP GUI family including the SAP GUI for Java.
For what it’s worth, here is some good new analysis from Rex Ballard.
From: Rex Ballard <firstname.lastname@example.org>
Subject: Re: [Rival] The Microsoft OOXML Circus and Manipulation in Details
Date: Sat, 19 Jul 2008 15:44:35 -0700 (PDT)
On Jul 20, 12:54 am, Roy Schestowitz <newsgro…@schestowitz.com>
> ISO/IEC Recommendations on Appeals & Latest ODF News – Complete document as
> ,—-[ Quote ]
> | Bottom line to me? I think Microsoft sees a way to make some money with ODF,
> | but it wants to change it to suit its own needs better. It didn’t participate
> | in the ODF process, although it was free to suggest anything it wanted. Now,
> | when it looks like the world really does want ODF instead of OOXML,
> | surrogates are sending a dual message — first, that ODF has won, so OOXML
> | isn’t worth fighting any more (and anyone who does is an “extremist”
> | anti-Microsoft whiner), and two, that OASIS isn’t able to do a good job with
> | ODF, so the same folks who brought you OOXML should take it over.
Put another way, you’ve one the battle, so let’s break out the whisky
and rum, and pretend that the enemy isn’t just across the valley ready
to attack us while we sleep off our drunken stupor.
Microsoft’s latest attempt to subvert the standards organizations and
corporate bans on Office 2007 and OpenXML has been to put out a
“patch” to OfficeXP which allows it to open OpenXML. Then, if you try
at save an openXML document as an OfficeXP document it gives you lots
of nasting warnings and threats about how you will lose critical data
if you don’t save in OOXML format.
It seems that now that OpenOffice, StarOffice, and Symphony have
become pretty good at decoding .doc, .xls, and .ppt documents and
converting them to odt, odc, and odp formats. Microsoft is making a
last desparate attempt to extend their monopoly yet one more time, by
trying to force everyone to save their documents in formats that these
competitors cannot decode.
And since the OOXML standard is incomplete, none of these applications
will be able to decode such documents, because the structures of the
“binaries” is still under strict nondisclosure, including terms which
forbid the development of decoders for OSS applications. Essentially,
Microsoft will get their pound of flesh no matter how much blood they
have to spill to get it.
> | [...]
> | Because Microsoft’s not done until ODF won’t run? By that I mean, run as it
> | does. They are not meeting for nothing, in my opinion. It’s not busywork.
Sure, Microsoft wants to add some “extensions”, the same way that it
added “extensions” like VBScript, ActiveX, and extensions to
Eventually, Mozilla fought back, released FireFox, and today nearly
all vendors don’t want to risk turning away a well-funded customer
simply because they chose to use FireFox and refuse to use IE.
> | There is an agenda, no longer quite so hidden. It’s the opening part of the
> | effort to take over ODF control, I think, so Microsoft can make it less open,
> | probably, so as to make buckets of money from it, without Microsoft having to
> | actually be open.
They don’t even have to take Control. All they have to do is EMBRACE,
then EXTEND, and wait for the bones of the carcass to come out the
other end. EMBRACE the way an Anaconda embraces it’s prey, EXTEND
it’s jaws, even dislocating them slightly to be able to swallow the
crushed prey whole, then relax and let the digestive juices do their
work, allowing the crushed bones and remnants of fur to leave it’s
body as a ‘dropping’
> | On that page on What is Rick Smoking?, you’ll find a list
> | of who was to go to the meeting of this advisory group, and a commenter
> | says, “So a quick tally shows that there will be 25 participants, of which 12
> | are Ecma TC45 members (as listed) or Microsoft employees (Brett Roberts, Dave
> | Welsh, Jasper Bojsen, Kimmo Bergius, Shahzad Rana and Wemba Opota).”
> Get the picture? Is that who you want in charge of ODF?
How do you think they got control of Caldera/SCO?
It’s those “midnight specials”, meetings held when the key opposition
and it’s leaders are away and can’t be reached, including an offer
that looks too good to be true, but must be accepted within a very
short time limit, before the opposition leadership can be contacted.
> Read the whole thing if you can. The Redmond filth are playing dirty, kindly
> smiling while they do it.
Same Stuff Different Day.
I’ve been pointing this type of behavior out in this group for what,
Microsoft is not “Evil”, they are just like any other preditor. A
mouse should not trust a rattlesnake, no matter how “harmless” it
might seem at the moment, because the ultimate outcome is as
predictable as the sunrise. If the snake moves into the hole to avoid
the cold, when it warms up, if the mouse is still there, the snake
How many times have we seen Microsoft snatch Linux/OSS defeat from the
jaws of victory. Just as we gain a huge advantage, Microsoft makes
it’s lethal blow, and Linux is relegated to Self-installation for
another 3-4 years.
> “We need to slaughter Novell before they get stronger….If you’re going to kill
> someone, there isn’t much reason to get all worked up about it and angry. You
> just pull the trigger. Any discussions beforehand are a waste of time. We need
> to smile at Novell while we pull the trigger.”
Which is what they have done, a few times. I’ve shared about the time
that Microsoft killed Novell by giving them “the deal” that if Novell
stayed off the desktop, Microsoft wouldn’t touch their server, then,
when all of the desktop team was fired, Microsoft announced that NT
would have a built-in file and print server (effectively killing
Novell’s growth potential).
Most recently, they seduced Novell into yet another deal, which
ultimately gave Citrix control over the commercial version of Xen, and
then Citrix killed the implementation where Linux was the host in
commercial versions of Xen, especially for the desktop.
> –Jim Allchin, Platform Group Vice President at Microsoft
It’s too bad we can’t get the court records of the original DOJ case
back into public records on a public internet site, including the
highlights of Mr Bill calling the Judge and the prosecutor an idiot
(the Judge’s very accurate observation).
Unfortunately, the new administration will barely have time to get a
new attorney general approved before the DOJ settlement expires. I
wonder if they will be able to effectively argue for an additional 5
year extension based on Microsoft’s blatant disregard for the portion
of the agreement that required Microsoft to stop interfering with OEM
efforts to distribute Linux (including along with Windows).
Perhaps when Apple has taken it’s place as the number one OEM by
dollar volume and unit volume, the OEMs will give Microsoft/Vista the
“heave ho” and let them come back with a more “flexible” offer.
Perhaps the new administration will push for quatas and other
restrictions on Microsoft’s business practices, as well as mandates to
permit Linux machines to be displayed in retail stores.
Maybe the FTC will just file fraud charges against Microsoft for about
200 of the activities that became public during the antitrust trial.
Or, maybe we should just let Microsoft collect the money directly
through our taxes, we’ll just be forced to pay 1 week’s pay to
Microsoft, whether we like their products or not.
Any additional thought are, as always, very welcome. █
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Microsoft and Software Patents
There have been some interesting developments in the past day or so. First and foremost, Microsoft is being sued again and this time it’s due to encryption.
Microsoft Corp. is being sued by a closely held company for allegedly infringing two encryption patents in the Windows operating system.
Maz Technologies, based in Wilmington, Del., “suffered damages as a result of the infringing,” according to the lawsuit filed Tuesday in federal court in Tyler, Texas. Maz seeks an injunction against Microsoft and unspecified damages.
It is a Texan court, as usual. That’s where all the patent trolls go. This suit goes on top of a pile that includes the recently-disclosed lawsuit over the competition- and Web-hostile Silverlight (mentioned previously in [1, 2]).
GNU/Linux and Software Patents
Mark Radcliffe finally explains the Red Hat settlement, which is important because he is a top gun for the OSI. This settlement was previously discussed in [1, 2, 3, 4].
Some months ago, Torvalds expressed his concern about patents and he is doing it again in this fragment from a new interview.
RM ‘Do you think software patents are a good idea?’
LT [Linus Torvalds]: ‘Heh – definitely not. They’re a disaster. The whole point (and the original idea) behind patents in the US legal sense was to encourage innovation. If you actually look at the state of patents in the US today, they do no such thing. Certainly not in software, and very arguably not in many other areas either.
Quite the reverse – patents are very much used to stop competition, which is undeniably the most powerful way to encourage innovation. Anybody who argues for patents is basically arguing against open markets and competition, but they never put it in those terms.
So the very original basis for the patents is certainly not being fulfilled today, which should already tell you something. And that’s probably true in pretty much any area.
But the reason patents are especially bad for software is that software isn’t some single invention where you can point to a single new idea. Not at all. All relevant software is a hugely complex set of very detailed rules, and there are millions of small and mostly trivial ideas rather than some single clever idea that can be patented. The worth of the software is not in any of those single small decisions, but in the whole. It’s also distressing to see that people patent ‘ideas’. It’s not even a working “thing”; it’s just a small way of doing things that you try to patent, just to have a weapon in an economic fight. Sad. Patents have lost all redeeming value, if they ever had any. ‘
By the way, be cautious when it comes to Linus forgers. There are people out there on the Web pretending to be him and I received an E-mail from Linus a few days ago confirming that his identity is being stolen. The legitimacy of comments in particular must always be questioned. Linus hardly ever comments in blogs.
Patent Riot in the Making?
Peer-to-Patent was mentioned here a couple of days ago and the day before that. It has just received some recognition from the USPTO, which published the press release that’s appended at the bottom. Also, mind this bit about the Wall Street Journal pushing for a patent reform for years. [via Digital Majority]
Ironically, and humorously, the post is in the department titled we-could-have-told-you-and-did dept.. One of the many issues in patent reform has arisen from the unwillingness of some in the IT area to write down what they have done, and, more importantly, to read what others have written down. The kdawson post seriously neglects the PAST positions of the WSJ on patent reform, and thus becomes another piece of evidence of the unwillingness of some in the IT community to understand what has already happened.
The Fight Against RAND
IP-Watch has a couple of new articles that discuss the issue of RAND (in standards in particular) and how it is — ironically enough given its name — used to discriminate against competitors. Here is the first article.
The inclusion of intellectual property rights in standards also is creating an anti-competitive effect, said panellists at the 30 June seminar in Geneva, hosted by the South Centre.
Recall the BSA's role in lobbying. The BSA is funded by Microsoft. Along with IDC, ACT and other servants of Microsoft, they pretend to be assisting small businesses (the ‘little guy’) rather than the monopolies.
The Commission promised to consider how the EU patent fee structure could be designed for easier access by small and mid-sized firms, and to try to provide IPR support services for small companies in their countries.
Nothing in intellectual monopolies can support “small and mid-sized firms.” Their goal should be the elimination of such a system. For details on how patents affect the small ‘inventor’, patiently watch this good talk from Richard Stallman. The story about the ‘small guy’ in need of ‘protection’ is little more than just a fairly tail that’s used to protect a pyramid scheme of human knowledge. █
USPTO Extends and Expands Peer Review Pilot
Initiative to test impact of public input on improving patent quality opens to automated business
data processing technologies (business methods)
Washington, D.C. – The Department of Commerce’s United States Patent and Trademark Office (USPTO) today announced it will extend the duration, increase the maximum number of applications, and expand the scope of applications eligible to participate in the Peer Review Pilot. The pilot, launched in June 2007, encourages the public to review volunteered published patent applications and submit technical references and comments on what they believe to be the best prior art to consider during the examination. The expansion and extension of the pilot is effective today.
The pilot was initially restricted to patent applications in the computer-related arts (those classified in Technology Center 2100). The scope of the program is now expanded to include applications in the automated business data processing technologies, or business methods, class 705. Technical experts in the computer and business methods-related arts registering with the peertopatent.org Web site will review and submit information for up to 400 published patent applications, up from 250 as originally announced. No more than 25 separate applications will be allowed from any one person or organization, up from 15 in the original announcement.
“The USPTO continues to support the Peer Review Pilot to help it fulfill its promise as a way to help get the best prior art expeditiously before the examiner,” noted Under Secretary of Commerce for Intellectual Property and Director of the USPTO Jon Dudas. “Extending and expanding the pilot to include business method patent applications will add more participants to the pilot and help us and the public better assess the effectiveness of Peer Review.”
The pilot is being conducted in cooperation with the Peer-to-Patent Project, organized by the New York Law School’s Institute for Information Law and Policy. The pilot is extended for an additional 12 months and will end on June 15, 2009.
To date, companies participating in the Peer Review Pilot have included IBM, Microsoft, Hewlett-Packard, Sun Microsystems, Intel, GE, Red Hat, Cisco, Yahoo!, and others. With the expansion of the pilot, Goldman Sachs has volunteered to join as a participant.
“We support the Peer Review Pilot and commend the USPTO’s decision to expand the program to include financial sector innovation, which has been one of the most difficult areas to locate relevant prior art.” remarked John Squires, chief intellectual property counsel at Goldman Sachs. “Expansion of the pilot into class 705 will allow the Office to access considerable industry expertise and holds promise for improving patent quality and the shortening of long pendency times.”
Existing law allows the USPTO to accept prior art from the public, but it doesn’t allow the public to submit any commentary related to the art without the approval of the applicant. Thus, consent will be obtained from all applicants whose applications are volunteered and selected for the pilot. Applicants agree to have their patent applications posted for up to four months (but no less than three months) on the www.peertopatent.org Web site. Expert volunteers from the public then discuss the applications and submit prior art they think might be relevant to determining if an invention is new and non-obvious. The prior art submission is limited to 10 references.
So far, the pilot’s first 31 applications have been examined. More than half of the examiners who examined an application in the Peer Review Pilot so far thought the prior art submitted by the peers was helpful during examination. More than one-third of the examiners used peer-supplied prior art in the first action on the merits. Nearly 75 percent of the participating examiners said they believed the program would be useful if it were incorporated into regular Office practice.
For this pilot, applications are assigned to an examiner for examination as soon as a submission is received from the peertopatent.org Web site. This shortens considerably the time it normally takes from filing an application to a first action on the merits in the areas where the pilot is occurring.
For further information on the program and to review the Official Gazette notice, visit http://www.uspto.gov/web/patents/peerpriorartpilot/.
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