Monday, April 27, 2009

Earnings Release " A WAKEUP CALL"

In mid-December 2008 this campaign for a "New Strategy" was launched. It was indicated that Microsoft desperately required a "New Strategy". In the initial posts it was indicated that the trend was moving towards SaaS, handheld, cloud computing and netbooks. It was stated that Microsoft was to focused on the cash cows and had to re-examine its business model.

This campaign stated that within the OS market, Microsoft was losing share to competitors. It was stated a "New Strategy" was necessary to offset the potential depletion of revenue from the company cash cows. It was this campaign's contention that Microsoft was required to allocate capital towards initiatives that would supplement a potential decrease in revenue.

Microsoft has released its quarterly results. Refer to:

At this time it might be appropriate to say to Mr. Ballmer "told you so".

According to the release, net income for the company has declined a staggering 32%. This is a significant number.

A large portion of this decline can be attributed to the increased trend with netbooks. This trend caused tremendous impact on the company. The Client division experienced a 16% decline in revenue. The division revenue declined from $4.03 billion to $3.4 billion. Perhaps the most telling with this loss is referenced by Joe Wilcox at Microsoft Watch. Mr. Wilcox states:

"More than 80 percent of Windows revenue comes from OEM sales. Windows licenses then are more transactional. By comparison, about 65 percent of Server and Tools revenue comes from annuity licensing contracts. The difference is important. Annuity customers pay up front, on annual basis, under two- or three-year contracts. These commitments help insulate Microsoft earnings against the highs and lows of the economy or product release cycles. The protection is great for Server and Tools, not so good for Client. Economic conditions demonstrate how dramatic is the difference between transactional and annuity licensing sales".

Refer to:

This campaign stated that it forwarded letters to Mr. Ballmer prior to launching the "New Strategy". It has been indicated that Investor Relations fowarded a email stating that the company has experienced growth and was focused. However, this campaign has continued to state that Microsoft is required to impliment a "New Strategy" that would insulate the company revenue and earnings from a decrease in OS sales. The campaign has indicated that the company is largely dependent on its OS for the majority of the company revenue. This reality is confirmed with the recent quarter release.

Could this be the initial signs of the campaign's predictions?

If Microsoft fails to adopt a "New Strategy" it is probable that this is only the beginning for the company. This campaign has referred to the trend towards cloud computing and mobile. It is interesting to note that Microsoft experienced losses in Online Services and Entertainment and Devices. This indicates that the company is failing in the primary growth trend sectors. This demostrates that the company is failing to maintain its cash cow OS revenue and consumers are spending on services that deal with "cloud computing". This also reaffirms the arguement outlined in "Could Microsoft be the Next General Motors". GM failed to recognise trends and eventually competitors stole market share in new markets. Microsoft is losing in OS and is failing in the new trend sectors. This could prove detrimental to the company.

Its' failing to compete with Google in online services. Unless Mr. Ballmer creates a game changing strategy that will increase share in this sector the company will fail to have a solid revenue base within this domain.

The Entertainment and Devices division has deployed over $9 billion and Xbox trails Wii and Playstation. The Zune was a complete failure. Its Win Mobile is also a dramatic failure despite massive spending.

Another article that gained attention is titled "The Top Ten Stocks to Short Sell", which is located at CBS Marketwatch. The article references the best companies to short-sell. What is alarming is that Microsoft is within this list. Refer to:

Now, this campaign is not advocating short-selling Microsoft. This campaign is seeking to force Microsoft management to adopt a "New Strategy". This "New Strategy" is located within this blog titled Edited "New Strategy".

The company has experienced a 32% decline. It is failing in Client, Online and Entertainment. The company shares have been referenced as one of the best shares to short-sell. These facts should be a serious "wake-up call" to Mr. Ballmer and The Board.

Who is holding Mr. Ballmer and The Board accountable for these results and the company failing to create shareholder value. If the company fails to impliment a game changing strategy, it will continue to experience a decline in OS. It will continue to experience a revenue decline in Client and consumers move towards netbooks. It could be threatened by IBM, Apple, Linux. There is another threat on the horizon if Oracle acquires Sun.

The company will continue to experience a loss in Online as Google expands it share and product mix. Additionally, Win Mobile through its alliances will fail to generate adequate revenue to offset the decline in OS revenue.

It is time for a "New Strategy". It is time to rally support and effect change.

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Anonymous said...

If that report doesn't get Ballmer fired, nothing will.

Anonymous said...

This report, and especially the extreme weakness relative to competitors, finally documents in fundamentals what most have thought of Ballmer and MS for the last decade. He's trying hard to blame it all on the economy, but it doesn't take much analysis to see that the recession is only partially to blame. Equally if not more important are the mistakes, missed opportunities, bad investments, and worse products. What happens next will be critical to whether MS even exists in ten years. If shareholders continue to be cowed and put their faith in the team that got the company into this mess to get it back out, then we'll see a lot more reports like this one in the future.

Steve Ballmer said...

Why are you people so hard on me? We are making money!~