Microsoft's Ballmer: We're Wiffing On Vista

So Steve Ballmer comes out with a little early warning of a pending whiff in 2008. But here is how he frames it to the analyst community - "Woo hoo - 2008 Operating Expenses will be lower than expected" (shouting at the crowd). "Uh, and maybe the analyst numbers for 2008 Vista revenues are too damn high" (whispering into his coffee cup).

Are you kidding me, Steve? I know your regard for sell-side analysts is pretty low, but don't you think they're a little smarter than that? Not to put words in Steve's mouth, here is what he actually said (from Reuters via Yahoo! News):

SEATTLE (Reuters) - Microsoft Corp. (Nasdaq:MSFT) Chief Executive Steve Ballmer on Thursday forecast that fiscal 2008 operating expenses would be "somewhat less" than the previous year, likely a bit below $2.7 billion.

"We will have moderating growth in operating expenses next year but I wouldn't expect a huge drop," Ballmer said in a presentation to analysts.

Ballmer also said that analysts' forecasts for Windows Vista revenue in 2008 were "overly aggressive" and that the world's biggest software maker expected to do "more of the same" with regard to cash.

He added that the company was willing to spend money to acquire online customers as the company battles for share against rival Google Inc. (Nasdaq:GOOG).

Ok, so in English, what I hear Steve really saying is:

1. 2008 Vista revenues will not meet expectations; therefore
2. Microsoft will incur lower operating expenses, because we just aren't selling what we'd hoped; and
3. Since we don't have many attractive ROI opportunities in our core businesses we'll continue to buy back gobs of stock; and finally
4. We may need to further scramble in search and other means of online customer acquisition since we are continuing to get the crap kicked out of us by Google.

Does this sound about right? I think so. Just to re-visit a little history, I've been quite skeptical about my friends in Redmond for quite some time, or, rather, I've chronicled the Internet's growing cynicism concerning Microsoft's product strategy, their bloated and siloed culture and the challenges to innovation they've faced as a result of their desktop/software roots and a mind-set to match. This is just not a pretty picture. Just look at the bolded words above. And less to say "I told you so" than to provide a resource for those interested in getting deeper into the Information Arbitrage approach to analyzing Microsoft, please consider the following:

02/05/2007: Apple Envy Seizes Microsoft
12/12/2006: Microsoft vs. Apple: Is Vista the Answer in the Era of Consumer Computing?
12/10/2006: Microsoft: Dazed and Confused
08/10/2006: Schumpeter and Search

I hope you find this information useful. Because the Internet has done a pretty good job of handicapping Microsoft for investors. It's just sad to see one of the great companies of a generation losing touch with their customer base, the dynamics of a shifting web-oriented world and the shackles of a hidebound culture that used to be the toast of corporations worldwide. How times have changed.

Disclosure: Author has no position in stocks mentioned.

Comments

[Jon T]

Seeing this, and the appalling performances of Ballmer and Gates, one has to wonder whether the Microsoft era isn't starting to draw to a close..

[Jameswg]

It appears that maybe the two best tech companies Apple and Google are really starting to cut MSFT to pieces.

[Malkiel]

As an end-user who's put some thought and study into Vista I see too many technical issues for them to squirm out of gracefully on this release. They've really painted themselves into a corner on a lot of issues (incomplete functionality, excessive hardware demands, program incompatibilities, network complexities) and only big mistakes by the Apple and Linux crowds will save them from a loss of at least minor market share to the underdogs...