Sunday, July 26, 2009

OT: Microsoft 's uncertainty about its financial future

For my last post I dipped into Microsoft.com to check on their earnings report for Q2 and on the way out I noticed that Microsoft had put some caveats on their earnings forecast. Now there's nothing wrong with doing that - it makes perfect sense to tell readers what challenges the company faces - but I was intrigued by the tone of those caveats. Here's the actual text:
Actual results could differ materially because of factors such as:
  • challenges to Microsoft’s business model;
  • intense competition in all of Microsoft’s markets;
  • Microsoft’s continued ability to protect its intellectual property rights;
  • claims that Microsoft has infringed the intellectual property rights of others;
  • the possibility of unauthorized disclosure of significant portions of Microsoft’s source code;
  • actual or perceived security vulnerabilities in Microsoft products that could reduce revenue or lead to liability;
  • government litigation and regulation affecting how Microsoft designs and markets its products;
  • Microsoft’s ability to attract and retain talented employees;
  • delays in product development and related product release schedules;
  • significant business investments that may not gain customer acceptance and produce offsetting increases in revenue;
  • unfavorable changes in general economic conditions, disruption of our partner networks or sales channels, or the availability of credit that affect the value of our investment portfolio or demand for Microsoft’s products and services;
  • adverse results in legal disputes;
  • unanticipated tax liabilities;
  • quality or supply problems in Microsoft’s consumer hardware or other vertically integrated hardware and software products;
  • impairment of goodwill or amortizable intangible assets causing a charge to earnings;
  • exposure to increased economic and regulatory uncertainties from operating a global business;
  • geopolitical conditions, natural disaster, cyberattack or other catastrophic events disrupting Microsoft’s business;
  • acquisitions and joint ventures that adversely affect the business;
  • improper disclosure of personal data could result in liability and harm to Microsoft’s reputation; and
  • outages and disruptions of online services if Microsoft fails to maintain an adequate operations infrastructure.
Most of these seem reasonable but there were some points that seemed just a little... well... paranoid:
  • Microsoft’s continued ability to protect its intellectual property rights;
  • claims that Microsoft has infringed the intellectual property rights of others;
  • government litigation and regulation affecting how Microsoft designs and markets its products;
  • adverse results in legal disputes;
  • unanticipated tax liabilities;
Why would there be a problem here if Microsoft was behaving as a good corporate citizen? Each of these points seems to operate on the unspoken principle that Microsoft might be charged and convicted of unlawful behavior. So pick a theory:
  1. Microsoft has no faith in the legal system and is concerned they will pay a large financial penalty as part of an Unjust and Unfair decision.
  2. Microsoft has a lot of faith in the legal system and is concerned they will pay a large financial penalty as part of a Just and Fair decision.
  3. Microsoft is just hedging its bets and avoiding all responsibility for predicting their own revenue.
I don't know the answer for sure, but I'm leaning towards Number 2.
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1 comment:

robwi11s said...

It seems like they published their whole risk log. Maybe they were obliged to publish their major risks and decided that by publishing the whole log it hid the wood in the trees. It reads like a threat to government to lay off them for a while.