08.02.10

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Financial Situation at Microsoft: An Opener

Posted in Finance, Microsoft at 11:21 am by Dr. Roy Schestowitz

Scissors or opener

Summary: An opening statement and some coverage preceding an actual breakdown of areas where Microsoft loses a lot of money

MICROSOFT RELEASED financial results last month. We hadn’t caught up with the news about it until Sunday, so now is a good time to elaborate on what we already wrote since these results’ publication, namely:

We also have an index about Microsoft’s financial mischiefs, for those who are unfamiliar with Microsoft’s history of financial fraud for example. Last week we said more about the Pequot story, which had also been covered in:

Here is what the Wall Street Journal wrote about this:

The ex-wife of a former Microsoft Corp. employee received $1 million for providing information that helped federal regulators bring an insider-trading case against former hedge-fund titan Arthur Samberg.

This was covered in a ton of publications, only a small portion of which we ought to name for future reference:

  1. Pequot Insider Trading Informant Gets $1M High Five From SEC
  2. Hell hath no fury like a hedge fund manager’s ex-wife
  3. Connecticut couple gets $1 million SEC award for Pequot
  4. SEC Awards $1 Million for Information Provided in Pequot Case
  5. SEC pays $1 million to woman who ratted on her ex

Our previous posts about that hopefully provide insight into Microsoft’s relevance to it. They also ought to present quite concisely the similarity to the case of a Microsoft whistleblowing incident; it’s about Microsoft fraud, which Microsoft swept aside by settling with the SEC and paying $4 million to the whistleblower.

“SEC now freer to hike whistleblower awards,” concludes the headline from the Washington Post:

With powerful senators watching closely, federal investigators search high and low for evidence of insider trading in shares of Microsoft. One of Wall Street’s best-known hedge fund managers is targeted, but the feds can’t find proof. Years pass, and they close the case without filing charges.

So on we move to the news and the analysis that has not been presented here yet. Last month it was pointed out that “Microsoft [Was] Down 25.87% Since Reporting Quarterly Results 71 Days Ago (MSFT)” and that “Money Flow [Was] Negative for Microsoft Corporation; MSFT” (see specifics inside).

The Boston press published the following article: “Is Microsoft heading the way of the dinosaur?”

Nortel Networks, Remington, Eastman Kodak: The list of once-thriving and now-defunct or moribund technology companies reads like the stops on an abandoned railway line. You can add Microsoft MSFT-Q to that list. It’s well on its way to obsolescence. Nothing can be done. It’ll take a long time – decades – but this $200-billion (U.S.) company is finished.

These predictions are not far fetched at all. Shortly after Microsoft had posted its results even Microsoft boosters like Preston Gralla could actually choose a headline like “the days of Microsoft growth are over” (and Gralla has vested interests in Microsoft due to his occupation).

A GNU/Linux proponents’ Web site posted an hypothetical “Open Letter from a Microsoft Share Holder” (real shareholders do feel the same way and some want Steve Ballmer out).

Your attempt to reach the youth via smart phones was an epic failure. KIN has been pulled by Verizon in a matter of weeks. Anonymous purported employees claimed that the IP you bought acquiring Danger are now wasted and call it as embarrassing as Microsoft Bob. Joe Wilcox correctly predicted Kin’s failure as you fired the leadership of the Entertainment and Devices division just before the Kin product launch.

Ahead of the results Reuters came out declaring: “High hopes for Microsoft, but stock still adrift”

The article says that “Signs point to strong results for Microsoft Corp (MSFT.O) as companies get around to buying computers after a two-year drought, but its stock may find it tough to gain altitude amid worries about where growth will come from in coming years.”

“Microsoft’s stock barely moved because while Microsoft could easily deceive the press, it could not quite deceive shareholders who do this for a living.”As we pointed our earlier today, it's about hardware sales for the most part, especially after a highly recessionary year. “Microsoft profit beats Street, stock unmoved,” heralded The Star. Is anybody surprised? Microsoft always beats expectations because it sets the expectations low and if business is not doing well, then Microsoft does in fact revise the expectations (so that it will beat them later). We wrote about this several times before and explained how financial jargon is being used to obscure the simple truth. We gave current examples. Microsoft’s stock barely moved because while Microsoft could easily deceive the press, it could not quite deceive shareholders who do this for a living. “Microsoft Shares Slip Despite Earnings Beat” — that’s the headline from the Wall Street Journal. It’s not so rosy after all, not based on the financial market anyway.

So anyway, what could have caused Microsoft to push unimpressive results (which did not impress shareholders on the face of it)? We have already explained how Microsoft fudges the numbers and plays with an accountant’s toolbox, which is probably not illegal.

In the next part we will take a look of one of the latest culprits which is responsible for poor performance. That would be “KIN”, which failed to compete against Linux (perhaps outsold by Linux at a ratio of 1:~15,000 on any given day). In the third part of this series we will look at the impact of Google and Free software on Microsoft.

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