Luskin on the liars over at Microsoft:
Don Luskin (rating 3.82) on 00:22 07.20.01
Bait and Switch
Don was stunned by Microsoft's guidance disappointment last night -- now he's mad as hell, and he's not going to take it any more.
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Video from our morning call:
Lord knows I've tried to defend Microsoft when everyone else wanted Bill Gates' head on a spike. But this stunt they pulled last night really makes me mad.
It all begain a week ago, on July 11, when Microsoft preannounced higher-than-expected revenues -- and they did it in a very classy way. In their press release, the news about higher revenues came second, behind a headline that candidly confessed a massive multi-billion dollar write-off of losses on bum investments. The write-offs were expected, but the higher revenues were a surprise -- so Microsoft's stock soared the next day, and lifted the hopes of the entire market.
Combined with their announcement the same day that they were allowing OEM's more flexibility in the way the Windows desktop was pre-installed on new PCs -- followed shortly by their settlement with the State of New Mexico in their antitrust suit, and lots of conciliatory noises about settling with everyone and anyone -- it all made for the impression of a kinder and gentler Microsoft, born again as a model corporate citizen.
Then this week it all started looking like maybe it was all just a Mutt and Jeff routine -- last week it was Microsoft the "good cop," and this week it's Microsoft the "bad cop." First, the Wall Street Journal reported yesterday that Microsoft was dropping support for Java run-time applets in its next generation web browser running under Windows XP. Okay, everyone said that was a monopolistic tactic -- but hey! -- I'm a libertarian -- why should Microsoft have to support the products of arch-rival Sun Microsystems if they don't want to?
Next, they filed a Petition for Rehearing with the US Court of Appeals, seeking to overturn their support of the Circuit Court's Finding of Fact that the commingling of code for the Windows operating system and the Internet Explorer browser was a monopolistic practice. Okay, so they're not rolling over and playing dead and making nice on the portions of the appeal that went against them -- but hey! -- I'm a libertarian -- isn't it their right to protect themselves using all the legal remedies at their disposal?
With Microsoft representing the largest single stock position in the fund I manage, I figured this was all just fine.
And then when I read the headline of their earnings press release after the bell yesterday, I figured everything was just fine, too. After all, it said:
Microsoft Announces Record Revenue For Fiscal Year 2001
Windows 2000 Professional, .NET Enterprise Servers Post Record Fourth-Quarter Revenue Performance
Yep, reading through the first page of the press release, it was all just hunky dory. Earnings beat by a penny (after ignoring that icky investment write-off, of course), and revenues came in at the very high end of the higher range preannounced a week earlier. And, according to the glowing write-up, all Microsoft's corporate initiatives have been performing brilliantly. What's not to love? These guys just can't do anything wrong! This stock's going to be up ten points tomorrow, and the whole market will go with it.
All that -- everything I've described so far -- was the bait. The switch came on page two of the press release.
After all the bragging and all the hype, inserted innocently under the "Business Outlook" section, was the revelation --offered with utterly no explanation -- that the upcoming quarter was going to be a disaster -- an EPS miss of six cents below the Street's expectations, and lower than expected revenues, too. And P.S. -- your cat is dead.
This is the most ineptly handled guidance disappointment I've ever seen. Well, perhaps "ineptly" is too generous. Words like "manipulatively" come to mind. And for a company striving to make a good impression on a skeptical world, this is a stunning act of bad corporate citizenship. And it can all be summed up in one damning question: what about last night's guidance couldn't have been disclosed a week ago?
In the online Wall Street Journal's coverage of Microsoft's report, Goldman Sachs' veteran Softy-watcher Rick Sherlund -- ever the master of understatement -- is quoted as saying that investors might "feel a little whiplashed." Yeah... they just might.
And they might feel a little angry, too. In fact they may feel mad as hell, and like they're not going to take it any more. They're going to take it out on Microsoft today. And on the whole market.
OpenFund commentary
Markets were higher on Thursday, with the NASDAQ 100 gaining 1.74%, and the S&P 500 gaining 0.61%. OpenFund's performance came in between its benchmarks with a gain of 1.10%. (For complete performance information, click here.)
Three of OpenFund's ten stock sectors -- semiconductors, networking, and wireless -- outperformed both of the fund's benchmarks.
Five of the stock sectors -- power, financial, general technology, biotech and gold -- underperformed both benchmarks.
Two sectors -- software and "other" (our catch-all category including retail, manufacturing, and consumer services -- had mixed relati |
