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>From TheStreet.com email newsletter...
JW
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Herb on TheStreet: Does Microsoft Really Have Reason to Be This Gloomy?
By Herb Greenberg
Senior Columnist
4/24/00 11:23 AM ET
>From the contrarian department: "Maybe the real story is: why does
Microsoft (MSFT:Nasdaq) want to knock its stock down?" So started a
lengthy email from Michael Murphy of the California Technology Stock
Letter, in response to my question late Sunday night: "What's your take
on Microsoft, now?" The "now" referred to his recommendation to buy
Microsoft two weeks ago after the company warned of a
weaker-than-expected third quarter.
So, what does the outspoken Murphy think now?
"They're lying," he wrote back. "Again."
His reasons:
"A. They have lots of cash, so if they can cut off the flow of cash to
everyone else it's easier for them to win?
B. It lowers the cost of the stock buybacks and reduces the accounting
charge for options?
C.???"
He went on to say he was "shocked" to see Cramer's comments, in his
initial Microsoft conference call column, say, "I have never heard this
company talk down earnings before." "It does it EVERY TIME," Murphy
says. "It brought the whole sector down in July '99 and July '98 by
forecasting sharp slowdowns in its business that never happened." (He
says he went to 100% cash in his newsletter on July 14, 1999, because
he expected Microsoft to forecast slow growth on the conference call.)
"A simple review of its quarterly conference calls for the last four or
five years," he continues, "will show its forecasts are almost always
lowball and usually are WAY wrong. It will say its revenue growth is
about to slow when it is about to accelerate. It will say PC sales look
weak right after Intel (INTC:Nasdaq) has said they look strong -- and
Intel turns out to be right.
"Look at this call. They sent the controller to do most of it. Even
though revenue was light, it beat the number by 2 cents. The damage to
the stock was already done, why not just meet the number and save the 2
cents for the June quarter? So instead of reporting 41 cents for March
and then 43 cents for June, now [it has] done 43 cents and set itself
up for sequentially flat.
"But no! Now he (and/or the CFO, who joined the call later) goes on to
say that estimates for the June Q look a little high and he'd shave a
penny or two off them! So now he's created expectations for a
sequentially down quarter. Of course, you have to believe that a
Microsoft June fourth [fiscal] quarter, including a full three months
of Windows 2000 shipments, can somehow be weaker than the
post-Christmas March quarter with almost no OEM sales for the first six
weeks. Notice that it said OEM sales were weak in January and February.
Funny how it didn't mention March, when OEM sales took off and have
continued strong.
"THEN it had the gall to say although it hasn't finished its FY '01
planning process, the Street consensus of $1.93 looks about a nickel
high. I submit that at this point in time there is no statistically
significant difference between an estimate of $1.93 and an estimate of
$1.88, especially given that it hasn't even finished the planning
process. So why did it say that, other than to lowball the Street and
knock the stock down?"
Maybe so it can show the government that Microsoft is not really the
monopoly it's being made out to be because its stock has nearly been
halved from its high? Hey, in this wacko world, stranger things have
happened.
Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's
editorial policy, he doesn't own or short individual stocks, though he
owns stock in TheStreet.com. He also doesn't invest in hedge funds or
other private investment partnerships. He welcomes your feedback at
herb@xxxxxxxxxxxxxx Greenberg also writes a monthly column for Fortune.
Mark Martinez assisted with the reporting of this column.
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