Tuesday, October 23, 2012

Microsoft Earnings Review: Decline of an Empire


Microsoft reported QE September 2012 financial results on October 18

Straight up, CEO Steve Ballmer is the conservator of the Gates Family fortune and legacy while Bill runs around with Warren Buffett and Melinda gives vaccines to kids in Africa. You think the late Steve Jobs dreamed of Ballmer replacing him at Apple? You think the Big Tech companies such as Google, IBM, Qualcomm, et al. wish they could lure him away to lead them onwards and upwards forevermore?

Of course not, Ballmer's job is to sit on an unbelievable pile of cash and try not to screw up too much, of which he is capable of (see prior quarter EPS Suffers From $6.2 Billion Bungled Vision!).

That pile of cash now consists of liquid assets (cash, cash equivalents, marketable securities) that have increased to $66+ billion. Add noncurrent equity and other investments and the reserves are $76+ billion!

The problem is Steve Ballmer has no idea what to do with all this accumulated glory as he is hopelessly trapped inside the box as the world leaves the Mighty Microsoft behind. He is the old vaudevillian whose venues and crowds become smaller and smaller until ultimately only obscure county fairs and then finally ladies social clubs are his only gigs.

How has Microsoft been doing? Let's appreciate the downtrend and ineffectiveness of Microsoft management to lead stay at the leading edge of technology.



What's going on here? Could margins be slipping as the same old tricks lose effectiveness?



Year over year growth is slipping away... However, this next quarter, Holiday Q4, should be strong, even for Microsoft, and we might see a year over year increase at top line and bottom line. If not, the castle gates have been breached. Q1 and Q2 2013 could be ugly and confirm the hastening decline of the empire.



Windows new era magic isn't working yet, maybe in Q4.



We now arrive at the crowd of irate MSFT stockholders yelling about Ballmer's lack of stewardship and maximizing shareholder wealth.



Our old vaudevillian speaks and brings out the hat and cane:

"The launch of Windows 8 is the beginning of a new era at Microsoft,” said Steve Ballmer, chief executive officer at Microsoft. “Investments we’ve made over a number of years are now coming together to create a future of exceptional devices and services, with tremendous opportunity for our customers, developers, and partners.”

$MSFT $XLK

Seeking Alpha