MSFTextrememakeover

Thursday, August 30, 2007

Wanted: Significant MSFT shareholder with a spine

For some time now, I've been watching MSFT's laughable execution and downward spiral. I'm not talking about revenue, where the near-monopolies have proved strong enough that even this management team haven't been able to screw them up beyond modest growth rates. Or profits, where their anti-Midas touch has had more detrimental impact, but still not enough to throttle gains completely. I'm talking about the now almost institutionalized missed ship dates (the latest btw being Server 2008, which I believe makes for a delay on every major product release this year), largely uninspired products, endless gaffes, and of course investments that only bring losses, to name just a few.

As incredulous as I've been over this performance, I've been even more amazed by MSFT shareholders. While owners of other companies (most with far better track records than Microsoft this decade) have mounted serious campaigns to replace their leadership teams and Boards, MSFT shareholders have been largely silent. Indeed, the nascent pressure that was building for Ballmer's ouster 2-3 years ago has largely dissipated. MSFT shareholders are a binary lot, it seems. They either vote with their feet and sell (as they have for the past 5 years), or continue to hold and suffer in silence. And, of course, there's always the current leadership team telling us how super-fantastic everything is, or soon will be at least, while leading the market in insider selling. I tell you, sometimes it's enough for even me to question whether my perception of the company is accurate. But then I look at the stock price, or drop by Mini-Microsoft, and know that my view and that of the rest of the world is largely simpatico. Still, it's always nice to get corroboration. Which brings me to an article courtesy of David Hunter's Microsoft News Tracker site:

Some excerpts:

In 2017, what and how big will Microsoft's major revenue streams be? Even discounting hindsight, that's a lot harder to answer than the same question ten years ago: As Vista has proven, XP is good enough: that wasn't the case for Windows 95 or NT.

Check.

So Microsoft is a huge company with a fuzzy future. In many respects, it's underperforming, if not stalled.

Double check.

The company has huge stockpiles of cash, no debt, an enormous and predictable cash flow – and almost entirely stagnant growth prospects. It's got so much money it can lose tens of billions on a new project like the Xbox, and still keep the thing going. It can take five years to produce an update when its competitors are doing it every six months, and nobody cares. It has one mode of operation, and that's to charge ahead like a stegosaurus: its upper management, plentiful enough by themselves to populate an entire Jurassic landscape, rarely show signs of evolved thinking. When was the last time Microsoft surprised you with an unexpected sparkle of intelligence?

Triple Check, although I strongly disagree with the "almost entirely stagnant growth prospects". At the risk of being overly simplistic, if you find new and innovative ways to save customers money, make them more competitive, or even entertain them, you can sell them more and grow nicely. If you largely sit on your ass and subject them to wave after wave of often marginal upgrades out of some delusional sense of entitlement, you can't. Is the former easy? No. Is it possible and routinely done by others? Yes. Oh, and for me it was sometime in the late 1990's for that question at the end there.

There are huge savings possible by culling management and R&D, neither of whom seem to have the slightest positive effect on sales or products.

Quadruple check, although maybe "slightest" is too strong. More accurate, imo, is that both have had wholly insufficient impact to justify their considerable cost.

Anyway, by now you're getting his drift. Or possibly think he's me, only far more concise and eloquent. He even states the scenario that I've posted here repeatedly:

There is no way that the current state of Microsoft is the answer to any question concerning the sensible use of the resources within the company, and the massive inertia it possesses can only protect it for so long: either outside pressures will overwhelm it, or it'll collapse under the weight of its own contradictions.

Sadly, I continue to fear that collapse (or at least several missed financial quarters) will be the eventual spark for change - and then even more people (employees and shareholders) are going to get hurt, and it may well be too late. But fwiw, the author (Rupert Goodwins) is more optimistic. He thinks a change is on the near-term horizon:

This is the weather for a coup, whether by a posse of external shareholders with inside support or a rebel group of managers with help from the investors. The trigger point isn't far away – we're nearing the end of the multi-year transition period that's seeing Ray Ozzie and Craig Mundie replace Bill Gates. By now, the changes in Microsoft should be visible – but it's not looking that good.

The "rebel group of managers" willing to back away from the SPSA feeding trough long enough to finally do the right thing for the company and shareholders, sounds like a tall order. A "posse of external shareholders" seems a lot more likely, but right now there's no obvious sheriff - or posse. A third option would be a former MSFT manager with external shareholder backing. Someone like Brad Silverberg, for example, who was right about the web when Gates and Ballmer were wrong and is no longer there because of it. But lately he's been praising them. Or maybe he's just laying the groundwork for an impending return :-)

David Hunter notes this concern at the end of his post:

It is certainly possible, but who is going to step forward to lead the charge?

Excellent question. Where is our Eric Jackson, the shareholder who successfully led the charge for YHOO's CEO departure and is now going after Motorola? Where is the person responsible for say, Capital Research & Management Company's 530,043,392 shares held in MSFT? Why isn't he/she front and center raising concerns about their chronically underperforming investment? Or do they have to carry that much MSFT just to mimic the indexes in their funds? What about CalPERS? They're normally not shy about calling out an ineffective management team. Is MSFT somehow the only large cap they don't own a decent chunk of? Does anyone think Gates' own personal investment vehicle, Cascade Investment LLC, would sit idly by through five years of market underperformance and a flat-lined stock? If so, you've obviously forgotten how quickly they made their concerns known to Six Flags management when they were displeased with the latter's execution. So where are all the Cascade-like equivalents that own this underperforming stock and company? Why aren't ANY of them visibly making their concerns known? Surely there's one money-manager out there that has his/her own money at risk, and/or actually believes in their duty to investors to ensure management accountability and performance in the companies in which they invest? Someone with some clout and a backbone? We just need one...


Update:

Excerpts:

Cramer said Microsoft is "so IBM in 1988, it's frightening ... they think they're a nimble growth company."

and,

"Microsoft, other than aQuantive, feels it's better at everything than anyone," Cramer said. "Maybe it was at one time. But that's a terrible amount of hubris to run a company with."

5 Comments:

  • It is indeed amazing that MSFT has businesses like Xbox and Dynamics (aka MBS) where there is clear demonstration of ZERO accountability.
    A billion dollar charge, no problem Robbie, just let me know if you need more!

    If your revenues haven't grown in six years while Oracle and Salesforce kick butt, don't worry Satya. We'll promote you to head our search and ad division.

    Hey Louis (Levin), so what if you produce nothing after 5+ years in the biz intelligence space, you are a valuable asset.

    That accountability stuff is for those below L65. You are a partner pal, a member of the club. Don't worry - just follow the club rules and look after fellow members. We'll take care of ya.

    By Anonymous Anonymous, at 11:10 PM  

  • So how many shares do you need to have? I'm not talking about to actually get a vote to pass, but just to get an item on the proxy ballot, or raise hell at the shareholders meeting. Like just get the word out, and challenge people to think. How many...I'll vote with my ESPP shares.

    By Anonymous Anonymous, at 11:13 PM  

  • Their development is so bad that now they need HP to tell them what's wrong:

    HP Delays MediaSmart Home Server to Wait for OS Tweaks

    And I guess that's another product delay for your list.

    By Anonymous Anonymous, at 9:16 AM  

  • I would be happy to chat with you, but may I suggest you consider leading the charge yourself? You only need to own 1 share to make your case known to other shareholders and build support from others who share your view and passion.

    By Blogger Eric Jackson, at 7:29 PM  

  • In the case of MSFT, employees probably have much more leverage than shareholders. The big guys like Cap Research are closet indexers. They own MSFT because they have to. Many smaller guys sold out at losses or huge opportunity costs.

    If employees would organize themselves to make a statement, it would get through to management. It would also make a lot of news and shine a bright light on the fact that people *inside and outside* the company think management has no credibility. Imagine the photo in the New York Times of the picketing employees (even a relatively small group) with signs that have the stats from the right hand column of this blog. That would probably also get some shareholders to notice.

    Another idea is for employees to get together and write an open letter that is sent to all the top institutional holders and the major newspapers. Again, the info from this blog would make for great content.

    MSFT is sadly too big for an activist shareholder to matter. It's up to the employees to grow the spine and make it happen. A little bit would go a long way...

    By Anonymous Anonymous, at 11:31 AM  

Post a Comment

<< Home