I wonder what Paul Thurrott has to say now?
If you extrapolate this out, at a loss of $2B/quarter, MS will be out of cash reserves by 2015. That's a lot of money to lose, and not that far away.
I don't see how they can continue to finance things like the XBox, Zune and MSN at losses and continue to be a performer. The facts don't lie. MS needs more than Vista and Office to stay healthy, or they need to drastically scale back their operations (i.e. staff).
Nice detective work, as usual.
I was under the impression that part of the reason MSFT had been carrying so much cash was to pay out big if they lost a few more large antitrust cases.
Having said that, I enjoyed the "voodoo economics" of counting 4 months of Vista sales in one quarter.
Something's missing here. You can't create earnings by liquidating assets... and spending (cash) money either creates a different kind of asset or an expense (which decreases earnings). All the money spent on the Xbox creates losses, not earnings.
Keeping this straight is one of the primary points of accounting. You can only generate earnings by selling stuff for more than it costs to make.
You're right about loading up the quarters earnings with the deferred revenue from previous quarter. But those are real profits, just moved from the "waiting for vista" quarter to the "vista launches" quarter. It did make Vista seem more successful, and yes, Wall St saw right through it.
But you can't buy earnings with your cash unless you want to enter the realm of WorldCom and Enron and engage in outright fraud.
I am not a MS fan, but accounting does have rules and limits.
Steve,
So how do you explain the loss of almost $2B in the last quarter? If they spent it, what did they spend it on? That's a lot of money to lose.
"That's a lot of money to lose."
Maybe they gave it to Halliburton.
No idea where the $2B went... but you don't calculate profits and losses based on your asset base. Paying off debt or buying back stock uses up assets without incurring expense (just as issuing stock or borrowing money increases assets without creating revenues or earnings.)
Unless I'm reeeeeaaaaally missing something this is accounting 1A stuff. Income Statement vs. Balance Sheet; earnings vs. assets.
And honestly, MS has tooo many assets. It should be giving those back to shareholders (dividend, buybacks). It does not have any way to profitably invest its asset hoard as its new ventures continue to prove.
But MS's core businesses (Office, Windows, database) generate unbelievable amounts of earnings and cash flow. MS is not in any trouble. Their big issue is that they still want the glory days of being a Wall St darling, but they're too big to grow dramatically, and they'll never find another business as profitable as their current monopolies. They're IBM, without the bother of having to actually make hardware. Or maybe their GM in the 50s or 60s doomed to die but with so much cash flow and momentum that it'll take decades.
GM is a perfect analogy. Windows/Office/Exchange are all going to die, but with MSFT's cash, it could take 20 years.
Most companies can't just translate assets into earnings. But Microsoft carries large amounts of unearned revenue on its balance sheet, and it absolutely can shift that to its earned revenue so long as it is clear it is doing this.
Microsoft has also been working down its asset base by paying dividends out of cash and buying back shares. That's perhaps the biggest drag on the balance sheet at this point: Microsoft is giving away shares cheaply (via options grants that get exercised) and then buying them back more expensively later. And with 9 billion shares outstanding, it has an impact.
Thanks for all the great discussion!
Carl
very very amusing this latest post of yours. hee hee hee... i think all the accounting chicanery and financial shenanigans is entirely the province of another company, the apple of your eyes 
. all the same, please don't stop writing about msft. it is very valuable to read what a msft bear thinks.
"please don't stop writing about msft. it is very valuable to read what a msft bear thinks."
We bears have been a happy bunch. Have you plotted MSFT over 5 years, or 10 years lately?
As for Apple's purported options chicanery: 1) as a stockholder, I'm not inclined to "sweat the small stuff". 2) It's not like MSFT doesn't have its own backdating issues. It's just that AAPL has always been a much bigger magnet for bad press than MSFT has.
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