07.20.08
Posted in Microsoft, Finance, Deception at 6:17 am by Roy Schestowitz
At reader’s request: Microsoft’s financial disappointment
It almost feels like covering an old story, so herein we mention only a few new developments and reference the rest at the bottom.
As many have realised before the week ended, Microsoft is not in a good shape. It’s nothing like it used to be, but Microsoft goes out of its way to keep up appearances, even using aggression. Perceptual momentum is essential for growth through customer obedience and investor confidence.
“Ask what it is not telling you. It has plenty to conceal.”Just as predicted, Microsoft emhasised revenue, which the massive acquisitions make rather meaningless (buying revenue is easy at the expense of savings). Those who have read this site for a while might not be surprised, but the Microsoft-owned press can be hugely self-serving, i.e. deceiving. Contradictions to it can be painted black… like a black sheep that Big Lies make possible.
Microsoft shares fell sharply, just as they did in the previous quarter when profits fell and Microsoft was no longer able to pretend and conceal its pains. This marked the beginning of a stage where we are likely to see Microsoft’s estimates and forecasts lowered and then potentially missed again and again. Recall the fact that Microsoft lowered its projection in the last quarter (and missed them again).
When looking at the financial results, do not ask what Microsoft wants to show you and get journalists blinded by. Ask what it is not telling you. It has plenty to conceal. Being a large company, it can do a lot of division- and bucket-shuffling to impress investors. Here is just one old example: Microsoft Hides Its Mobile and Business Apps Divisions
The company is folding its two worst-performing divisions — Microsoft Business Solutions (its business applications unit) and its Mobile and Embedded units — into the Microsoft Business Division and Microsoft Home and Entertainment units, respectively.
For details about Microsoft’s financial game, see some of the many previous posts (listed at the very bottom).
Let’s take a quick look at some of the realistic (in-depth, as opposed to ‘Microsoft parroting’) press coverage that Microsoft received at the end of the week.
The Bad
From CNN:
Shares of Microsoft Corp. dropped more than 6% in after-hours trading after the software giant posted a fiscal fourth-quarter profit that fell short of Wall Street’s estimates as it forecast lower-than-expected revenue for the following quarter.
According to an analyst quoted by The Street, Microsoft is “not doing well on the earnings front.”
Karen Finerman said that Microsoft was “a little disappointing,” and that she does not “love two quarters in a row of them being lower.”
Adami said that Microsoft’s major problem is that it does not tell what is going on. He said that it must “communicate with the Street better.”
[…]
Najarian said that Microsoft was “not doing well on the earnings front,” and “don’t buy this name thinking you’re going to get a monster pop.”
Buying lots and lots of companies (wasting money) for increase in revenue and employees just makes the company clumsy and overweight. John Dvorak opines that the strategy of the company as a whole is misguided and hubris-driven.
The secondary message, which we’ve all heard for some time now, is that the business model for the software giant is a dead end, if not over already
[…]
To make matters worse, the company is now making itself look more desperate over the new toy in the sandbox called Yahoo Inc.
We wrote about the Microsoft-Icahn duo before. They are now visibly united as they carry on with their planned proxy war. It does not help Microsoft in any way because it makes it look bad, never mind the distraction it causes.
In the latest salvo in the proxy fight for control of Yahoo, the company is urging shareholders to beware of the “odd couple” — Microsoft and the corporate raider Carl C. Icahn — who are locked in a “marriage of convenience” but have no clear plan for what they would do if they took control of the board.
Yahoo is now also using its Web space to attack Microsoft and Icahn, apart from describing the latter as a corporate agitator. It’s not good for business.
The Sad
Even the Microsoft-associated financial Web site, Motley Fool, comes off with the headline: “Whither Microsoft?”
But the bears have a response or two ready. “Microsoft is currently too big to expand significantly above where they currently are,” says all-star Fool simultaneouslee. “Also, with Bill Gates no longer involved in Microsoft and the more eccentric Steve Ballmer running the show on his own, not as many investors will be inspired by Steve Ballmer’s visions for Microsoft as they were Gates.”
[…]
OK, so Microsoft is on sale right now — but perhaps with good reason. The company is facing unprecedented obstacles on every side.
In some ‘mainstream press’ articles, the economy as a whole takes the blame (Microsoft too tried to use that as an excuse). Examples:
It may run deeper than this. Consider some new observations, as follows.
The Online Unit does badly:
Shares in Microsoft were trading down 6.3% in after-hours trading at $25.78, after closing up 0.95% to 27.52.
Microsoft said earlier that its online services business lost $488 million, on sales of $838 million. In the year-earlier period, the online services business lost $210 million.
The entertainment unit too has some serious trouble ahead. Relative sales of XBox 360 fell sharply in the month of June and the company seems unlikely to recover, even with considerable discounts. The XBox division/unit has lost about $7 billion since 2001 and other products like the Zune seem to be approaching death.
I wonder why Steve Ballmer freaks out at the thought of losing the search and advertising wars to Google (Nasdaq: GOOG), but not at handing the game-console crown to Nintendo (OTC BB: NTDOY.PK) or the music market to Apple (Nasdaq: AAPL). How is it worth throwing billions after a major rival, only to scare away the engineering talent that makes (made?) Yahoo! great? In the second case, well, let’s just throw more bad money after that Zune abomination and hope the Xbox saves the day.
On the Microsoft Office division:
The Microsoft Office division numbers were a disappointment. Operating earnings there only grew a disappointing 12% for the period. The company’s online division posted an increase in revenue to $838 million from $677 million a year ago. However, losses for that division doubled to $488 million from $210 million, as management spent heavily on data centers and new employees to ramp up ad sales.
“Fear, uncertainty and doubt” are blamed also:
Citigroup analyst Brent Thill wrote Friday that the stock’s low price-to-earnings multiple reflects investors’ fear, uncertainty and doubt: fear that the product cycle will never deliver margin expansion, uncertainty that Microsoft will ever do a deal with Yahoo! and doubt that further online investments will pay off.
Lastly, The Ugly
As the links at the bottom will show, there’s a lot in Microsoft’s past about financial irregularity and misconduct as well. And fresh from the news:
Former manager gets 22 months in prison, fines for embezzling
[…]
Gudmundson was responsible for managing Microsoft’s domain names from 2000 to 2004.
Remember what Robert Bach, a Microsoft Vice President, did last year while escaping investigation or punishment.
And wait! Watch this newly-disclosed gem (Microsoft’s mortgage issue) from a source that is close to Microsoft:
In another surprise disclosure, Microsoft said its investments include mortgage-backed securities but they’re mostly “prime” mortgages and the portfolio is not directly exposed to the sub-prime meltdown:
“While we own certain mortgage and asset-backed fixed-income securities, our portfolio as of June 30, 2008, does not contain direct exposure to subprime mortgages or structured vehicles that derive their value from sub-prime collateral. The majority of the mortgage-backed securities are collateralized by prime residential mortgages and carry a 100% principal and interest guarantee, primarily from Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and Government National Mortgage Association. The remainder of the mortgage position is collateralized by high quality international prime residential mortgage loans.”
For more information, see our previous posts which are filled with many informative references handpicked from the press.
Criticism, if any, should be directed at the sources, not the messengers. The truth will come out one day. █
“Sadly, many of these brilliant people have been blinded by the stock price and unable to see that Microsoft is also the key architect of the greatest financial pyramid scheme this century.
“It is not uncommon for participants in pyramid schemes to lose their emotional bearings. My close friends who work at Microsoft are particularly upset over my work and it is possible that even Bill Gates and Steve Ballmer do not realize the implications of their financial practices.”
–Bill Parish
“Microsoft has clearly entered a phase of self destructive behavior that began with the “tissue paper campaign” in 1995. This report will document this campaign for the first time.”
–Bill Parish
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07.17.08
Posted in Law, Microsoft, Finance, GNU/Linux, SCO, UNIX, Courtroom at 4:31 am by Roy Schestowitz
SCO has already received its decent share of money from Microsoft and from BayStar (at the very least), through which Microsoft ensured SCO is funded to continue its legal battles against Linux. The decision on Novell/SCO is now in and a preliminary look suggests that Novell, which may be acquired by Microsoft one day, is set to inherit some of SCO’s assets and money.
OK. I’ve read it now once through, and the big picture is this: Judge Kimball did not change anything in his August 10th order, which I was afraid might happen. He could have, had he heard anything that he didn’t know when he made that order. So, SCO breached its fiduciary duty to Novell, converted funds, and so it has to pay. That is ironic, in that this case started with SCO accusing Novell of slander of title, and asking for millions in damages. Instead it has to *pay* Novell millions.
From all of these UNIX/Linux wars, one party among several that benefit is Microsoft. Groklaw opines that Microsoft is the next SCO. █
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07.16.08
Posted in Microsoft, Finance, GNU/Linux, Patents, Patent Covenant, Fraud, Samsung at 3:52 pm by Roy Schestowitz
Fraudulent minds think alike; sign software patent deals
W
e have been through this more than once before [1, 2]. Samsung was caught in the midst of a huge scandal and even its chairman was personally involved. He not only quit the company but he is now going to prison.
The ex-chairman of South Korean firm Samsung, Lee Kun-hee, has been found guilty of tax evasion in Seoul and given a three-year suspended jail term.
[…]
The charges followed a three-month investigation into alleged corruption at South Korea’s biggest conglomerate.
Lee, one of South Korea’s richest men, had headed Samsung for two decades before his resignation from the chairmanship in April.
Remember that Samsung signed a Linux-hostile deal under Kun-hee’s leadership.
A noteworthy thing is the similarity between Samsung’s business practices and those of Microsoft. For instance, information about Microsoft’s tax evasion you’ll find in [1, 2]. Lest we forget other mischiefs, including the recent crusade of corruption, all in the name of lock-in. There are some other questionably-criminal activities here and here. Windows Vista too is still blushing at the courtroom after collusions.
It almost seems as though there is more justice in Korea than in supposedly ‘more civilised’ parts of the world. Had justice prevailed in the west, governments would not handle Microsoft so submissively and cowardly. Then again, enforcement of the law typically boils down to political manipulation (or corruption). █
“Did you know that there are more than 34,750 registered lobbyists in Washington, D.C., for just 435 representatives and 100 senators? That’s 64 lobbyists for each congressperson.”
–CIO.com
Disclosure: My father traded with and distributed Samsung electronics almost exclusively for 20 years, so there hardly any bias against the company.
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07.11.08
Posted in Microsoft, Finance, GNU/Linux, OpenDocument, Asia, FOSS, Africa at 2:38 pm by Roy Schestowitz
Microsoft sponsors shackles of infinitely-duplicable bits
T
hink about the children! It’s always the children that Microsoft approaches equipped with the excuse for zero-cost non-Free software. As for poor college students, they can receive considerable Office discounts for their data to be locked in without easy remedy. They’ll pay dearly when they grow up.
Today’s development comes from down south. For background on ODF and Free software adoption in South Africa, see [1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12]. The short story is that South Africa is one of the leading countries in that respect. Microsoft has lost sleep over it, so it sent lobbyists there, to no avail.
Now… it boils down to money.
We’ve already seen this in many places, including Paris and Dubai [1, 2, 3]. Lobbyist Gates was behind some of these anti-Linux deals with high-level officials. He works quietly behind the scenes (also after that so-called ‘retirement’), but the press has it documented.
Whenever a places is on the verge of adopting Free software, Microsoft starts throwing money at the problem, in order to stifle competition. And now it’s South Africa where Microsoft battles its #1 competitor. Here is an article that does not require subscription to view in full:
Microsoft to give software to 26 000 [South African] schools
Microsoft will supply productivity and server software worth about R750-million to public schools.
The software is expected to reach 26 000 government schools across South Africa, bringing modern information and communication technology to more than 11 million pupils.
A surprise it is not. On several occasions in the past, on the record even, officials said that the country would move to GNU/Linux, starting with the government att he least. There are already some very large and successful deployments, which happen to favour Ubuntu, product of local a ‘rock star’, Mark Shuttleworth.
“It’s a case of buying away children’s liberty…”Microsoft is determined to put an end to it. It will probably also give these children Office; You know, in order to stifle ODF and to spur the network effect using lock-in and other dependencies.
It’s a case of buying away children’s liberty and there will always be those welcoming the gift blindly. Let’s wait and see the reactions in coming days (we’ve informed some people already).
The only thing that can stop this wonderful trend of GNU/Linux adoption seems to be dumping, namely Microsoft paying (or at least donating) for schools to choose Windows, which it already offers for as little as US$18.
To Microsoft, it is the ‘dumping phase’ now. It warns about it in its SEC filings and tried this with Intel down in Nigeria (paying them to take Windows). Sales of Windows fell 24% in the last quarter nonetheless, so it’s a matter of urgency.
Another new announcement from Microsoft revolved around work with non-profits. Little do the journalists know what’s in store. It’s being described very blindly as goodwill, but didn’t Microsoft give money to thousands of Indian NGOs for pro-OOXML pressure? There are always expectations or strings attached.
Examples:
1. Microsoft influencing partner NGOs to support OOXML in India
Microsoft is encouraging its business partners to promote its Office Open XML specification (OOXML) to the Indian Bureau of Standards (BIS) and Ministry of IT. This move has incensed supporters of the rival OpenDocument Format (ODF) who fear that the “soft” Indian state may not be able to stand up to Microsoft pressure tactics.
2. Microsoft “persuades” NGOs to support OOXML
Our friends at Linux Delhi have put up a copy of the form letters that Microsoft has been sending NGOs on the OOXML issue. Apparently, these NGOs have been sending copies of these letters to the Ministry of IT and Bureau of Indian standards.
3. Using NGOs to Push Agendas
The extent to which Microsoft can go in its efforts to get OOXML is interesting. Microsoft has “persuaded” several non-profit organizations to bombard the Indian IT Secretary and the Additional Director General of the Bureau of Indian Standards with letters supporting its OOXML proposal. A copy of the form letter they have been circulating to NGOs is given below. Somebody should interview these NGOs to see how much they really know about OOXML and open standards.
The sequence of events leading up to the spamming of GoI? is:
Letter from an NGO thanking Microsoft (name changed to protect their identity)
Guess who left Microsoft India shortly after this scandal had been exposed?
Microsoft offered them lots of money before the first vote on OOXML, which took place in September 2007. AP reported about it. How desperate is Microsoft? █
“It’s nice for you to admit your guys are running scared [of Free software]. They should be.”
–Dana Blankenhorn, The sum of Microsoft’s fears
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06.28.08
Posted in Microsoft, Finance, Novell, Security, Oracle, IBM, Virtualization, Dell, Identity Management at 6:48 am by Roy Schestowitz
This is the last portion of news for today. It’s subdivided into the main developments that came up over the past week.
Upgrade, Buybacks
This may not actually mean much, but Katherine Egbert has upped NOVL, which led to a rise in share value. It may have something to do with Novell’s recent buybacks [1, 2, 3, 4].
Read the rest of this entry »
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06.26.08
Posted in Microsoft, Finance, Windows, Europe at 3:17 am by Roy Schestowitz
How to cover one’s back when funneling taxpayers’ money
Over the past few days we have mentioned a couple of new Memoranda of Understanding [1, 2] which resemble the infamous one from the UK [1, 2, 3, 4]. According to the latest report from Mark Ballard, Richard Steel and his colleagues at Newham (or Microsoft) not only referenced their own ’studies’ for validation, but they also resorted to ad hominem attacks against Ballard himself. How noble.
Steel had claimed the first MOU had been superseded when we put it to him that the original deal had failed to meet its key objectives. He insisted the objectives had been met. After we published evidence that the original MOU had not met its objectives, Steel tried to discredit your humble correspondent in his blog. He also shared confidential reports for publication in an apparently desperate attempt to find ways to show how the Microsoft deal could be justified.
The reports were benchmarks produced by the Society of IT Managers, of which Steel is now president. The MOU had achieved all its objectives bar some spurious commitment to develop with Microsoft a methodology for measuring the performance of the Microsoft deal, said Steel. This done, “We had therefore agreed new actions with Microsoft in a progress review last year,” Steel repeated in his blog. But the original agreement had stipulated that the Microsoft deal would propel Newham into the top performing quartile of UK councils and that this would be demonstrated in benchmarks drawn up by the UK’s independent Audit Commission. Councillors opted Microsoft over Open Source on this promise in 2004. The deal has failed to meet this objective.
Yesterday we shared a video that exposes the similar situation at the BBC. They struggle to justify their choice of a monopoly abuser that grossly overcharges taxpayers. Having failed to do so, as Microsoft often does, they produce (or manufacture, as in “manufacturing consent”) their own ’studies’ or case studies.
Only yesterday, the following new article about Larry Lessig’s work was published; it analogously applies here.
And then there’s the big one: global warming, and the “junk science” research put forth at the behest of the oil industry.
Also interesting are Lessig’s remarks on money that changes hands and its impact on the industry as a whole. █
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06.21.08
Posted in Red Hat, Microsoft, Finance, Novell, Deception at 5:37 am by Roy Schestowitz
A ruthless, merciless Novell
The cultural overlap between Novell’s and Microsoft’s management was mentioned here before. It’s not entirely clear, however, if Novell will ever go as far as Microsoft has. Sometimes you can find Novell inheriting and adopting similar strategies though.
One of the patterns worth noting is deceiving investors. This might not be as severe as Enron’s story, but you can never find out the truth in its entirety until the bitter end (SCO too delivered quite a whopper out of nowhere at the time).
It’s important to re-highlight the reasonable observation that, despite what Novell tells you, things are not going too well. A vice president quit the company some days ago. There was also talk about restructuring and the impact was felt:
Egbert this morning repeated her Hold rating on the [NOVL] stock, but trimmed her price target to $7.50 from $8.
NOVL today is down 12 cents, or 1.8%, to $6.24.
We don’t typically take Egbert seriously, but her pessimism in this case is rather telling. Having investors fooled is a vicious exercise that leads to losses and financial injuries, so it’s sad to see Novell stooping this low. Yes, Novell actually admits doing this (albeit only in private).
And now come this: Novell gets quite the nerve when infiltrating its competitor’s summit, and by no means with friendly intent.
Me: We saw the cheeky little banner that Novell managed to hang outside the conference…
[Red Hat’s] Whitehurst: You like that…you should have seen the big floor thing they had. They had a big sticker on the floor but it turns out…not sure who had rights to that area but it wasn’t supposed to be there so it’s gone.
Red Hat PR minder: Cheeky, that’s a very nice way to put it…very diplomatic.
This is not the first time that I’ve seen this kind of behaviour. Back in the late 1990s when the Outlook vs Notes war was raging, Microsoft decided to hold its Outlook conference in Boston, which also happened to be the stopping ground of Lotus, maker of Notes. Lotus hired a fleet of vans embossed with its logo to drive round and around the Microsoft exhibition to show the Redmond boys it wasn’t going to take such provocation lying down. Juvenile but amusing.
The headline used to say “dirty tricks”, but the author later changed it to “cheeky tricks”. Maybe he was trying to appear more polite. Or maybe an editor stepped in to intervene. As you can see above (watch the photo), Novell is once again following Microsoft’s path of dirty tricks. It’s the intoxication of arrogance. Maybe.
These footsteps to the Kingdom of Malice have not died out just yet. Some readers might already know and remember this, but for those who do not, be aware that when PlayStation3 was launched (2006), Microsoft ran a coordinated campaign to sabotage Sony’s parties around the world. It was despicable. Some PlayStation fans actually cried because of this and the vicious strategy definitely came from the top. █
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« Previous entries ·
Highlight: Novell was the first to acknowledge that Microsoft FUD tactics had substance. Novell then used anti-Linux FUD to market itself. 
Highlight: Xandros let Microsoft make patent claims and brag about (paid-for) OOXML support. 
Highlight: Linspire's CEO not only fell into Microsoft arms, but he also assisted the company's attack on GNU/Linux. 
Highlight: Microsoft craves pseudo (proprietary) standards and gets its way using proxies and influence which it buys. 
Highlight: The invasion into the open source world is intended to leave Linux companies neglected, due to financial incentives from Microsoft. 
Analysis: Xen, an open source hypervisor, possibly fell victim to Microsoft's aggressive (and stealthy) acquisition-by-proxy strategy.