Even a profit bump of 30% couldn't buy Microsoft positive ink yesterday. Not that Redmond didn't try. But despite beating analysts' quarterly estimates and issuing an energetic press release that cited "awesome" PC demand as the reason for its new pile of cash, Microsoft came off in the media as vulnerable.
It could have been worse: Microsoft could be IBM. The day before its own earnings announcement, Big Blue went public with the news that it's ditching retail sales of its PC line. While the top software maker faced skepticism, the top computer maker received mostly pity.
Part of the reason the media shrugged off Microsoft's numbers is that reporters have been to Redmond's earnings theater before. The New York Times' Steve Lohr called the announcements "a practiced quarterly ritual in which Microsoft reports extraordinary profit figures accompanied by guarded commentary about the many challenges the company faces ahead." Despite Microsoft's bouncy adjectives and the upbeat demeanor of its usually understated CFO, according to Lohr, the media questioned the $US110 million decline in deferred revenue from last quarter, a figure analysts view as an important financial cushion. But as for what happened, Lohr left readers hanging with the comment that Maffei chalked it up to seasonality.
Lohr pointed out that while the event was scripted to convey the image of a company on the road to Net success, analysts wonder whether Redmond's software has the stuff to compete with IBM and Sun to run the fired-up data-center computers that make the Net hum. Microsoft made little mention of its newly minted joint venture with Telmex, Mexico's largest telecom company, to create a Spanish-language portal. But the Telmex deal raised some analyst eyebrows, according to the Los Angeles Times. "Microsoft hasn't even done well with its own portal," scoffed Michael West of research firm MWest.com. "Why should they do any better in Mexico?"
Some outlets saw the earnings as good news. TheStreet.com's Michael Brick wrote that the earnings had surprised some analysts who had anticipated the worst after Microsoft prez Steve Ballmer's recent efforts to talk down the stock price. The Washington Post ran a largely positive account. And Reuters chimed in with a quote from Scott McAdams of the Seattle brokerage McAdams Wright Ragen to the effect that it was a good quarter, particularly considering there weren't any upgrades. Some outlets, though, saw that as a problem. CBS MarketWatch's Mike Tarsala wrote that Maffei gave little guidance on when the long-expected Windows 2000 software would arrive. Tarsala also mentioned that the delays have already dented Microsoft's credibility with customers.
The press clobbered IBM for its decision to yank its desktop PCs from retail stores in favor of Net-only sales. The Los Angeles Times pegged it as a continued retreat, News.com saw it as an obviously embarrassing flip-flop, and the Wall Street Journal called it "a sobering defeat" for the largest computer maker. The Journal's Jon Auerbach reported unnamed sources as saying that IBM is losing money on every PC it builds. Once the Christmas rush is over, Aptiva will go online, while the Thinkpad will still be sold in stores. Only retailer OfficeMax will continue to sell Aptiva.
IBM PC exec David Thomas told the New York Times' Saul Hansell that Big Blue can't support its infrastructure on the thin margins of low-priced home PCs. Analysts said that's because IBM's approach is inconsistent and the company is late to spot trends. Said Ziff Davis analyst Mathew Sargent, "IBM reminds me of a 747 that takes off, climbs to 40,000 feet, then does a nosedive and pulls out just before it crashes."