Microsoft Puts On a Reassuring Face
By James J. Cramer
03/12/99 12:50 AM ET
"Microsoft (MSFT:Nasdaq) conference call!"
The sheer terror those three words can inspire rivals just
about any fear in this business -- and I'm not even long
Mister Softee!
That's why, when Jeff shouted intraday that Microsoft had
called a conference call after the close, I shuddered and
shivered, worried that, after all of our tech purging of the last
few weeks, we still had too much exposure to personal
computers. What happens if 'Soft confirms that PCs are
slow, I thought to myself? What happens if they admit that
some computer companies have too much inventory or that
others "stuffed the channel" with merchandise to get it off
their books? The thoughts circled through my head as I
watched the stock drop like a stone from 163 to 161 3/4.
"Wait a second," I said aloud, regaining my composure.
"How do we know it is not positive? How do we know that
things aren't great at 'Soft? How do we know that this isn't
the call that turns around tech?" As I spoke, the stock
seemed to lift through to 162, as if on cue, gaining
three-quarters of a point in a straight line.
Jeff noted that the reason for the call was a product delay
and there was no way that could be good news. Suddenly
the 162 bids seemed to disappear, and the stock was
sinking right back to 161.
Too pessimistic, I said. This is Microsoft you are talking
about. Not 3Com (COMS:Nasdaq) or AMD (AMD:NYSE) or
some other ne'er-do-well. "They might announce that things
are smoking in personal computers, and who cares about
the Office 2000 delay. It won't hurt numbers." And wouldn't
you know it, the 162 offerings start getting taken just as I
spoke the bull case.
Then Jeff said the words that I knew would define this call.
"If they defend the stock, they take away the upside. Stock
can't be at 160 plus without something left unsaid,
unspoken for when the actual quarter gets reported. To
keep the stock up here they may have to eliminate the
surprise!" Boom, the stock, as if by magic, heeded Jeff's
realistic call and settled in at about 160, where it parked
itself ahead of the conference call.
Indeed, in the bizarre world that is 1999 Wall Street, you
want companies to be able to do just enough reassuring to
preclude negative comments, but not so much that
numbers can't be raised after the quarter. That's got to be
saved for the formal number-bump postearnings release that
gets stocks going higher.
That's a tightrope, a balancing act, only a few companies,
even companies as great as Microsoft, can walk. If
something slips in one business, then the reserve that the
company might have kept quiet about to beat Street
numbers may have to be mentioned, if not hyped, just to
calm jittery holders.
And so it went. The stocks went out virtually unchanged, as
the tug between the optimists and the pessimists yielded
nothing more than a stalemate. Sure enough, after the
close, Microsoft put on a very reassuring face during the
call -- even as Oracle (ORCL:Nasdaq) was doing the
opposite with its quarter -- and the spin control seemed to
work.
While the product might be late, there are enough good
things happening that nobody has to cut numbers. When
the call was over nobody was whacking the 160 bid in
Instinet as we walked out of the office. But nobody was
taking the stock either, because MSFT took a lot of the
upside away with its reassurances. You can't rebottle that
stuff or repackage it to make us surprised when the quarter
gets reported.
Jeff was right; the upside to the stock had been diminished
by the call. In fact, now it seemed hostage to whether
people got short the stock ahead of the call and must now
cover because numbers don't have to come down. What a
weird no-man's land.
In fact, when Jeff and I chatted on the phone on the way
home, we realized that we were more worried about whether
Goldman Sachs' Rick Sherlund was worried about
Microsoft than whether Microsoft was worried about
Microsoft, because Sherlund had seemed "tough" on the
call. The Goldman software analyst is so powerful that it is
not enough to trust our own ears; we need to hear what
Sherlund says about the same call we listened to ourselves
to be sure we are out of the woods.
Yes, tech is so skittish, so crazed right now, that we just
called each other at home to discuss what prospective
effect Sherlund's potentially cautious comments about
Microsoft's comments might have on personal computers --
that is, if he is cautious at all!
Things are simply so uncertain in personal computers that
we can't leave any nuance to chance. I doubt that this call
solved any of the issues that continue to befuddle tech, and
Microsoft did admit that some personal companies were
stuffing the channel to make their numbers. Jeff noted that
Sherlund couldn't have liked hearing that.
Which is why, in the end, I like other areas besides tech.
Areas like the banks. Jeff and I don't have to sit there and
fret and worry and call each other and hold each other's
hands about bank earnings. No surprise conference calls in
that sector. No worries about whether the Rick Sherlund of
banks might go negative -- because there isn't a Sherlund in
the group. The stocks are speaking for themselves. And
that's just where I want to be.
Random musings: Aghast that TheStreet.com wrote
"Oracle Beats Estimates" as a headline tonight. I am
neither long nor short it, but as I said on the Yahoo
(YHOO:Nasdaq) call, this wasn't an upside surprise by any
means. And the stock seems headed lower.
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