Just found this thread, nice to see so many different thoughts out there. Here is an article from WSJ this morning:
Microsoft Corp. has been so aggressive about giving away free copies of its
Internet Explorer Web browser to wrest market share from Netscape
Communications Corp. that it has apparently lost count of how many copies are
in circulation.
The accounting problem came to light in a report from Spyglass Inc., a
Naperville, Ill., software maker that made a deal with Microsoft in December
1995 to supply the Web browser's underlying programming code to Microsoft
in return for a royalty fee based on the number of copies distributed.
Analysts had expected Spyglass to realize about $1.5 million on the Microsoft
deal in the fiscal first quarter ended Dec. 31. But Spyglass said Thursday it
received only $400,000 from Microsoft during the quarter, the minimum amount
specified in the contract. As a result, the company said it expects to report a loss
of between 10 cents and 13 cents a share when it reports its quarterly results on
Jan. 22. Analysts polled by First Call Inc. had forecast a loss of one cent a
share.
The news pushed the price of Spyglass shares down $1.25, or 10%, to $11.25,
in Nasdaq Stock Market trading Thursday.
Dawn Simon, a software analyst at Advest Inc. in Boston, said Spyglass officials
complained to her that Microsoft had so many distribution channels for its
browser that it lost track of how many copies had been passed out. "They
haven't been able to come up with one complete accounting record," Ms. Simon
said.
Spyglass said that it hadn't received an adequate royalty report from Microsoft,
and that it will seek an audit of Microsoft's records to determine how much it is
owed. In the deal, Spyglass is to receive royalties of as much as $5 million a
year for three years. The per-copy charge has not been made public, but
analysts estimate it to be approximately $1 a copy.
Microsoft spokeswoman Marianne Allison said the software giant prepaid
several million dollars in royalties to Spyglass in previous quarters. "We believe
we are actually ahead," she said.
Analysts said the two companies are likely to eventually settle the issue, but
noted that tiny Spyglass has more to lose than mighty Microsoft. "The amount of
money is not material for Microsoft, but for Spyglass, it really is," Ms. Simon
said.
As I have mentioned before, I can't say how important it is that SPYG was able to come off those lows of 10 3/4 yesterday. A lot of other companies would have gotten killed on an earnings warning like that. As of now, up 1/2. We'll see where that goes....
If this analysts are correct,(about $1 a copy) then that would imply that MSFT has only distributed less than 400,000 copies of IE. Does that seem right to anyone? Very hard to believe!!
Something is not right here. Either MSFT is trying to cheat SPYG more than they already are with the underpriced royalty fee, or they are not being honest with their numbers and now the spotlight is on them and they must come clean somehow.
Good point brought up as to cash situation. I believe 20% of SPYG current yearly revenue is received from MSFT, (just quick calc. not real sure), but whatever the case, it means a lot more to SPYG. Very difficult to plow money into R&D and new devices when you have no current revenue coming in.
Good day,
Curtis |
