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Microsoft CEO Steve Ballmer’s remarks on the Vista business at yesterday’s financial analysts meeting (webcast and PowerPoint) have certainly tipped over the punch bowl:
U.S. stocks fell on Friday after Microsoft Corp. tempered revenue expectations for the Vista computer operating system.
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“Microsoft can’t catch a break. We’re at 20 million shares in volume already – that’s not your grandmother trading,” said Cummins Catherwood, managing director at Rutherford, Brown & Catherwood in Philadelphia. “Those hedge funds can’t deal with disappointment. They can’t afford to wait for the impact to dissipate.”
I can’t help but smile because as Mr. Ballmer cautioned analysts on overly optimistic Vista forecasts, he hit some of my favorite high points:
The net in Ballmer’s words:
And the things people forget is a new Windows release is primarily a chance to sustain the revenue we have.
Given some of the daftly unrealistic analyst reports on Vista that I have seen in the press, it was probably time for a warning like this, although I’m sure Mr. Ballmer would certainly have preferred to deliver a happier message. Still, it’s better to temper unrealistic assessments now than to suffer massive disillusionment and share price abuse later.
Also of interest in Mr. Ballmer’s remarks was the indication that expense growth would vary little if at all:
Another area analysts were interested in hearing more about at the event was Microsoft’s plans for operating expenses in 2008. Some analysts had felt the company did not adequately prepare them before it announced a $2.7 billion increase in operating expenses for fiscal 2007 in April.
In this area, too, Ballmer seemed to want to temper expectations. He told analysts that they should expect only “a small drop from the $2.7 billion increase” for 2008, adding later that the company “may come back to you some time during the year and tell you that we’ll increase it.”
February 17th, 2007 at 1:28 PM
“And the things people forget is a new Windows release is primarily a chance to sustain the revenue we have.”
That’s exactly the problem imo – he used imprecise, and at times contradictory, language. The net of what he communicated was growth in ’08 slightly better than developed world PC growth (i.e. ~8-10%+). “Sustain”, to most people, means no growth or 0%. Left unsaid, but what I think he clearly meant, was sustain the current Windows business as it exists today (i.e. growing, albeit not nearly as fast at is used to). That leaves a possible interpretation gap that spans from 0%, to the supposed 2X PC growth estimates (call it 16% for argument’s sake) of some analysts (none that I’ve seen btw). Your point about ensuring reasonable expectations vs dissapointing later is valid. But communicating so poorly that you leave everyone confused about whether you were talking down just the extreme high end of estimates, actual consensus, or even calling for no growth whatsoever, is unacceptably stupid for the CEO of a DOW 30 member.
February 18th, 2007 at 11:36 AM
I have to agree that his comments weren’t exactly a marvel of clarity. You have to wonder if he was intentionally “fuzzing” the story or just generally fuzzy, since he had to know going in that this was going to have big implications.