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MSFT is a past master at the art of sandbagging the market. I find that
the contrarian approach works well when you view their earnings
warnings. In the case of today's news, it looks like a perfect setup.
It's clear that even if they lose today's battle they still have a
magnificent opportunity to ultimately win the war :) It's sort of like
chopping a worm in half. Where there was one, now there are two with an
identical gene structure -- ultimately, the stockholders, if they are
long termers, will win also.
Ned
JW wrote:
>
> >From TheStreet.com email newsletter...
>
> JW
> ----------
>
> 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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