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Microsoft Q&A: Old news is good news?

Posted on July 23, 2007

I think mainstream financial analyst questions at quarterly conference calls must be designed to support day trading. They don’t appear to be much help when it comes to investing. The back and forth at the recent Microsoft quarterly conference call was just another example. I heard a dozen trivia questions about old news like client and server software and only one (there might have been another technical modeling thing) about the future, Microsoft’s online division.

Nor did I hear a question about the open source software (OSS) movement vis a vis Microsoft. I don’t think OSS is a threat to Microsoft, and I am a firm believer in open choice in which the two coexist. But as long as the OSS movement thinks Microsoft is an “enemy” and parts of the OSS movement wish to achieve “World Domination” investors have to pay attention. In fact, I don’t think I heard a single question about the competitive environment. To be fair, the mainstream analysts are going to have all day Thursday July 26 at Microsoft’s annual analyst day to dig deeper (and you’re invited).

What I did hear in the formal presentation and in the carefully scripted answers to the carefully backwards-looking questions was all good. Even the stuff in the seams between the carefully scripted pauses was good news: 1) The guidance does not yet include the boost that the aQuantive advertising/publishing applications will give the online division, and 2) the estimate of what enterprises will do in general in FY 2008 is conservative. There could be upside from the already raised expectations.

Other little nuggets include (you can dig deeper in Research 2.0’s soon-to-be-released Microsoft annual study):

• Microsoft kept saying “It’s early days for Vista. The next 12 to 18 months are more important.” That relates to the fact that Microsoft adjusted the expected Vista/XP revenue split from 85/15 down to 78/22. (Long live Pinball, Owen!)

• Expecting a good CY 2008 boost from Longhorn, the new BI-laced SQL/Server, and what is likely to be an “eclipsing” Visual Studio, Microsoft noted a stronger than ever annuity-revenue mix in enterprise sales. It believes this change in mix is a long-term trend.

• Microsoft promised better “live” family integration and to build out its data centers. Promises are cheap, and heavy investments that do not provide healthy returns are very expensive. But throughout Microsoft history, the third time has always been a charm.

• Office is booming, and CRM didn’t do badly either. I would have rather heard about ERP, but Microsoft buried those results in its new FY 2007 segmentation, so it’s hard to compare the old Great Plains/Navision against SAP’s and Oracle’s ERP results. Overall business bookings were up 24% YoY but you can’t tell whether that is ERP or just CRM (or even Office, I guess). The fact that Microsoft said nothing tells me a lot, not even a thanks and good bye to Doug. Maybe we are looking at Microsoft’s first great divestment in the process setting up (resetting up actually) a great partner? It certainly helped IBM in the short-term to spin out MAPICS back in the day, creating the “AS/400 ecosystem Nova” that has only recently collapsed back into the black hole of Infor.

• In entertainment and devices, Microsoft said it accounted for some pricing and console tactics that it won’t tell us about yet in its guidance. Wait for the holidays.

• Actually there was one semi-competitive-environment comment: Microsoft doesn’t think the tide is raising it along with SAP, IBM, and so forth. It thinks the tide is at slack and that Microsoft is taking share from others in a fairly stable spend environment.

–Dennis Byron

Tags: Microsoft, Software as a Service, SaaS, Vista, open source software, OSS

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