Microsoft Quarterly Results

By W.D. Crotty

Revenue for Microsoft's quarter came in slightly below analyst estimates, but it was still up 5%. Net income almost doubled because legal charges (get this!) fell from $2.53 billion in last year's third quarter to $768 million this third quarter. To put that into perspective, this quarter's sales were $9.6 billion and legal charges were still at 8% of revenue (but down from 27.6% last year). It is expensive to fight in court!

All that fighting still left a very comfy cash hoard. After returning $39 billion to shareholders via a $3 special dividend (that alone is more than $32 billion), quarterly dividends, and share repurchases ($3.8 billion so far this year), the company's cash and short-term investments still stand at a mighty $37.6 billion (more than four times this quarter's sales) -- and there is not a dime of debt on the balance sheet.

The future looks bright for the company, too. Guidance for 2006 calls for sales to increase between 8.7% and 10.7%, and earnings per share (ignoring legal charges, but including stock-based compensation expense) to come in between 15.9% and 22.6% higher, compared to current-year estimates. At the high end of guidance, the stock is priced at about 19 times 2006 fiscal year earnings -- a very reasonable price for a premier but aging growth company.

What's ahead? While the upcoming new Xbox may make headlines, and captivate the child in many adults, it is Windows and Office that pay the bills. The 64-bit version of Windows is now available and the long-awaited new version of Windows (code-named Longhorn) is expected in calendar year 2006. The company is also working with SAP (NYSE: SAP) on a 2006 product that will allow Microsoft Office Suite users (a majority of the world) to gain access to SAP applications. So the cash cow is being fed and it's still producing.

Microsoft is a fantastic growth story that has produced gobs of cash for itself and its shareholders. Ah, but not for shareholders over the past five years. The slowdown in the company's growth rate has caused the stock to go, well, nowhere while earnings have steadily risen.

The days of sideways stock movement may finally be coming to an end. The new versions of Windows will help drive computer and application software sales that will, in turn, help drive Windows and Office sales. Oh, and new chips won't hurt either.

Add it up. Microsoft may be down 7.7% over the past 52 weeks, but it's a very healthy company ...

Microsoft Longhorn Security Doesn't Address Holes

((sorry guys, I'm working on a book... so I'm just posting items of interest & things I agree with right now... you'll hear from me again sometime soon))

Bill Gates will describe new built-in security features on Monday, May 1, in Microsoft's upcoming "Longhorn" Windows release. Combining hardware and software, the security is designed to protect data from unwanted eyes when systems are booted with a portable hard drive or floppy disk.

The security system's keys will be silicon-based rather than data on a hard drive, thus theoretically making the code very difficult to crack. This idea has been around for a few years and criticized by many as an attempt by Microsoft, rather than owners, to control systems that employ this scheme.


"I don't think this idea addresses the biggest security problems, which are
network security threats and not physical security threats," commented one longtime Windows user who makes his living in the IT business in Silicon Valley. "However, there have been cases where lifted hardware carries a risk of disclosed sensitive information, so this is certainly not a complete ruse."

High-profile laptop thievery in the San Francisco Bay Area, from organizations ranging from banks to labs holding nuclear secrets, have caused waves of consternation among regulators, politicians, and presumably, the population at large. Microsoft's method, should it be deployed in Longhorn, should Longhorn be released in this decade, should address this issue., although it is duly noted that PCs with security chips have been offered by major vendors for some time.

The main security issues, however, remain the plague of viruses, spyware, and related "malware" that impede performance, compromise systems, and potentially enable criminals to steal personal data for fraudulent use. There's no advance word as to whether Gates will address any of these issues on Monday.

Microsoft and Gay Rights

(from Salon.com)

There's taking the company line, and then there's the job Microsoft spokeswoman Tami Begasse has to do when called upon to defend the company's flip-flop on a Washington state bill that would have outlawed discrimination based on sexual orientation and gender identity.


Microsoft has a good reputation on gay rights issues, and it clearly would like to keep it. Thus, when we talked to Begasse this afternoon, we heard a lot about the benefits Microsoft provides to domestic partners and such. But when we asked for an explanation for why Microsoft went from supporting the Washington bill to being neutral on it, we got variations on the same two sentences -- over and over again -- that Microsoft provided to the New York Times yesterday. "We made a decision before this legislative session, as we do each year, that we would focus our energy on a limited number of issues that are directly related to our business," Begasse told us. "That decision was not influenced by external factors."


The "outside factors" in question would be threats of a boycott Microsoft received from Ken Hutcherson, the minister of a mega-church in Redmond, Wash. Begasse insisted that Microsoft made its decision to switch from supporting the anti-discrimination bill to being neutral on it before meeting with Hutcherson. The reason? We got the line about "focusing our energy on a limited number of issues" again.


But here's the part that doesn't make sense. If Microsoft wanted to "focus" its "energy" on a "limited number of issues" in the current legislative session, it could have just left matters as they were. Begasse told us that, while Microsoft sent out a letter last year in support of the bill, it had never lobbied actively on its behalf. So why not leave it at that? Microsoft didn't have to do anything more, and it would have been free to "focus" its energy on other legislation. But by changing its position on the anti-discrimination bill from "support" to "neutral," Microsoft did focus on the issue -- it had to inform the sponsor of the legislation, it had to meet with gay and lesbian employees, and now it's had to take a lot of criticism for the late-game switch. If Microsoft really wanted to preserve its resources to "focus" on issues closer to the core of its business, wouldn't it have been better to remain in support of the bill and leave it at that?


We asked Begasse that question as many ways as we could, and the answer was always the same. "We did move to a neutral position on the bill, but it was in order to focus our energies on legislative issues that are directly related to our business," Begasse said. "It wasn't influenced by external factors."


Got it?


-- Tim Grieve

Adobe Acquires Macromedia

Jesus! I'm in shock... I'm just posting the basic press story. More details available at Adobe's Web Site. I'll post more on this later this week, but in brief, this is a huge deal, creating a competitor that Microsoft will take very seriously.

Here's the basic story:

April 18, 2005
Adobe to Buy Macromedia in $3.4 Billion Stock Deal
By TERENCE NEILAN

The document-design software company Adobe Systems Inc. said today that it had agreed to acquire the multimedia software firm Macromedia Inc. for about $3.4 billion in stock.

Adobe, which is based in San Jose, Calif., and is best known for its Acrobat document sharing software, said the deal is expected to close this fall.

"Customers are calling for integrated software solutions that enable them to create, manage and deliver a wide range of compelling content and applications - from documents and images to audio and video," Bruce Chizen, chief executive of Adobe, said in a statement.

"By combining our powerful development, authoring and collaboration software - along with the complementary functionality of PDF and Flash - Adobe has the opportunity to bring this vision to life with an industry-defining technology platform."

Under the deal, approved by the boards of both companies, which are traded on the Nasdaq market, Macromedia stockholders will receive 0.69 shares of Adobe common stock for every share of their Macromedia common stock, worth $41.86 at Adobe's closing price of $60.66 on Friday, for each Macromedia share. That will result in Macromedia stockholders owning about 18 percent of the combined company when the deal closes.

Besides Acrobat, Adobe's software also includes the Photoshop program. Macromedia, based in San Francisco. makes the Dreamweaver and Flash web-design software used mainly in digital video production.

Combining the two businesses, the companies said, will allow them to create more powerful software programs that can be used across multiple operating systems, which they said should pave the way for expansion into new markets.

Cool Stuff... and Apologies

to all those who wrote to me, wondering when their "Beating Microsoft" fix was coming -- I'm sorry for the missed posts in the last few days. I've been sick, and am just now recovering from it. I guess my sudden absence is just a reminder that behind the software, there's always a real person.

I'm still not fully well, but here's a tidbit I saw from James Fallows this weekend that I thought was particularly interesting. Fallows is the long-time technorati from The Atlantic magazine, and former editor of U.S. News and World Report. I even met Fallows when he worked for awhile as a Microsoft contractor, in order to write about MS culture and practices.

Anyway, he now writes a "Techno Files" column for the NY Times. In this week's column, he writes about Skype and Google.

Here's a few tantalizing excerpts:

"Skype resembles Google, the gold standard of modern computing, in several ways. Its adoption rate has been phenomenal. When I wrote about it last September, it had been downloaded a total of 21 million times. Now the total is 100 million, and at any given moment more than two million Skype conversations are under way. Like Google, Skype keeps introducing new features - for instance, "SkypeIn," released two days ago, which allows users to create a local phone number and have all calls to that number forwarded to the user's Skype connection, wherever in the world that might happen to be. As with Google, once you get used to Skype, it's hard to imagine doing without."

AND

"In February, Google introduced Google Maps, a faster and better-looking alternative to MapQuest and other online mapping sites. Last month it added a touch that made Google Maps different from any competitor: high-resolution aerial photos of the area covered by the maps, which visitors can zoom in on for a closer bird's-eye view. (These photos came from Keyhole, a company Google bought last year.) Go to www.maps.google.com, enter a ZIP code or address, and then click the "satellite" button to switch from map to photo. In either view you can get driving instructions from one point to another, as with other map sites. But when the route is traced in the photos, the turns and waypoints are much more vivid."

He also adds THIS:

"The real importance of Google's map and satellite program, however, is not its impressive exterior but the novel technology, known as Ajax, that lies beneath. About that, and its implications for Google and other companies, there will be more to say in a future column."

Which is both tantalizing, and personally frustrating, as I had a long column (perhaps a week or so) planned on Ajax. Oh well, perhaps I'll still be able to add some insight to Fallow's "common man" perspective on Ajax.

See you all soon... as soon as I'm well enough to write without hacking my lungs out. Sayonara.

Do I Hate Bill Gates?

Given some recent hate-mail I've received (presumably from MS employees), I figure it's time to re-visit your friend and mine, the F.A.Q. !

Here's that FAQ that I put together, oh-so-long-ago to answer the intermittent questions.

Q: Do you hate Microsoft?

A: No, I love the company. That's why I'm writing this.

Q: So, you love it and you hate it?

A: I used to work there. You must love the company if you work there. I did, and I do. Sadly, the culture of innovation there -- that I loved -- is dying rapidly.

Q: Do you actually know anything about technology?

A: I shipped products for Microsoft, for Adobe, for Corel and for other companies. I wrote code and did many other software-related tasks, ending my ten-year stint in software as a marketing / business manager who could still code. So yes, I do. Enough to be dangerous, at least.

Q: Have you met Bill Gates?

A: Yes. Steve Ballmer and John Warnock too. Any other questions?

Fake Security Updates Plague MS

A little bit of a warning for those in the habit of keeping up with Microsoft security updates (and we all should be, shouldn't we, boys and girls?)

According to this C|Net story, a fake Microsoft update web site and coordinated e-mail campaign is luring people to install a Trojan horse virus.

Going around right now are a series of fake e-mails that look like they come from MS Windows Update web site. The fake patches that come from this download infect computers with the Troj/DSNX-05 Trojan horse, according to Sophos. That, in turn, will let the attackers to remotely take control of the infected PC.

As C|Net points out: “Microsoft does not issue security warnings this way. They don’t send updates in an HTML format, so don’t follow the links in an e-mail. If you want to see if an update is real, you need to go to the real Microsoft web site and check there.”

Microsoft Press Releases: Losing Relevance?

Big Tech Stories

Why did this story on Google storage changes get more press than all recent Microsoft product news, combined?

Especially as Microsoft just released news of the first major update of the Windows 2003 Server family. The Windows Server update is already available on MS.com, yet the Google storage update won't really change the landscape for anyone who uses GMail. In fact, the Scobe writes that 2 gigs is just a blip in the blogosphere.

As some gal named Karen Mahon, from Yahoo, said: "For many e-mail users, anything beyond one gigabyte is just a number." In short, it's a relatively negligible change by Google.

So in light of the reality that Web-based storage is meaningless, it seems just another sign of Microsoft's increasing irrelevance in the current software world that the NY Times featured this story instead of any Microsoft product release.

AIDS vaccine from MS technology?

Don't know how many of you saw this, but according to news reports, Microsoft researchers are assisting AIDS researchers in uncovering HIV genetic mutation patterns.

See, the weird thing about HIV is that it actually performs operations on cells very similar to spam. It masquerades as something the body actually wants, and then infects and disrupts the proper action of the body. What does this technical explanation mean?

Spam is a lot like AIDS. It acts like something it's not, and then hurts you.

So this partnership would seem to be a good thing. The only thing that gives me pause is that Microsoft is not known for its stellar internal review of software code or scientific rigour. The company is built to ship, and ship it does. Does it ship gold at times? Sure it does. Does it ship shit at times? Sure, it does.

That's an issue for Microsoft if they seriously want to contribute to this effort (and eventually, to an entry in this market space). Their reputation precedes them. And unfortunately, it's not a good reputation.

Any suggestions on how to fix that, folks?

Microsoft and Linux: staying even

I haven't typically given much credence to open source on the desktop, despite some promising hiccups in the past from Linux and Lindows. The desktop is just owned too solidly by Microsoft, and for good reason.

Microsoft understands the average user, and generally delivers what that user wants.

However, a new Yankee Group study shows that Linux is definitely gaining mindshare.

According to the study, there's now very little difference between the cost of maintaining a Windows versus a Linux machine.

"The main cost difference," said Yankee Group analyst Laura DiDio, "is determined by the amount of time it takes to develop applications or ensure the security of servers, the networked computers that store data, crunch numbers and serve up Web pages. What we found is that costs are not really dependent on the underlying functionality in the core operating system."

Of course, the Linux people won't tout one of the main findings, which is that 88 percent of respondents said that the quality, performance and reliability of Windows was equal to or better than Linux.

However, Linux still beats Microsoft in terms of perceived security (8.3 versus MS's 7.6 rating).

And just like I said yesterday, there's no compelling reason to go for Windows.

Consumers Don't Want Longhorn

Microsoft has been quiet in recent months about its next-generation operating system. However, given that the Longhorn ship date is ostensibly only a year away, the Microsoft publicity machine is cranking up. They'll be releaseing a spate of press releases any day now.

There are two looming problems. The first is that other players now seem to understand better than Microsoft how the game is played. The second is that consumers just don't seem to give a damn, as evidenced by post-article discussion on this Longhorn story.

Microsoft to some extent is a victim of its own success. As C|Net notes, "Windows XP has aged well, particularly with the Service Pack 2 upgrade that debuted last year and the Tablet and Media Center editions that have seen several updates in recent years." All of this leads to a kind of ho-hum consumer take on Longhorn.

In fact, some guy named Michael Demuth noted on C|Net that he wasn't just lackluster, but almost negative about Longhorn. He wrote that "XP is stable, it crunches the needed numbers at work and edits the home pics/video, and MS is already porting many of the features of Longhorn backwards." The kicker is this comment: "Why would I upgrade?"

There is, as of yet, no compelling reason to upgrade. This is a lethal flaw.

Microsoft could still fix Longhorn. After all, the Groove acquisition could be their salvation.

For now, they're in the twilight zone: Microsoft has a party planned, and there's no reason for anyone come!

Microsoft... and the end of the world

It's April Fool's in the U.S. today... but I've decided to post something that's emphatically not an April Fool's joke.

There's an interesting, practical, and disturbing little essay on coming energy shortages and collapse of our civilization.

Very pragmatic, very clear, and very scary.

This little essay is from a book by David Goodstein, the CalTech Vice Provost.

Of course, if our fossil-fuel dependent little world collapses, of course, there will probably be no more Microsoft, no more large scale software deployments, and no more need for this blog!