Don't forget - it was really a revenue miss, not earnings
Of course they did miss earnings, but only because they
missed revenue. Here's why.
Beginning of quarter management discussion:
What will this quarters revenue be ($290m)
What is our net profit margin (30% or so)
How much can we spend this Q (70% of 290m, including taxes)
Ok, we can spend 70% which is about $200m
Now, lets do the Q1 budget. We know how much we will spend ($200m)
and we know what we need to spend it doing (selling $290m). How
do we divvy it up.
Having had this discussion, they will merrily spend the $200m
trying to sell $290m of s/w. Usually (ie the last 21 quarters)
it has worked for them. This quarter, it didnt. They didnt sell
enough software, but they spent the predicted amount anyway.
So, earnings suffers, and it suffers proportionally more than
the revenue miss. As per my previous post, the $45m miss, if it
were added to earnings, would have brought earnings in line
with expectations. It all makes sense if you realize that they
spent the amount they thought they would spend, trying to make
the amount of sales they thought they could make. The spending
was "correct". The only thing wrong was the sales.
Why am I babbling on about this? Because the way the stock has
tanked would make someone think that the entire company
operating model had gone down the toilet, which it HASNT.
Notice that Bill said there would be no layoffs in the conf call.
Thats because he knows that the companys operating model remains
sound, and he just has to fix sales. The worst thing for him to do
now would be to say "well, we will have to lay off to control costs
so that our continuing reduced sales will still produce a 30% margin"
Instead, he has to figure out how to get sales to be 18% more
successful. Simple? No. But a hell of a lot simpler than fixing
the entire way the cmopany works, which is what the current stock price would have you believe.
I cant wait for the 19th. People want to hear from Bills lips
that HE believes sales can be made that 18% more effective.
Despite the loss of trust,people want to hear him say it, and will believe him if he does so.
Babble babble babble, another late night post (groan)
Elephant
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