Microsoft has a relatively easy fix: quit wasting billions on R&D
Brace yourself for another round of screaming headlines on Thursday when Microsoft announces its third quarter results. Analysts expect Microsoft to report income of 36 cents per share on $14.4 billion in sales for the quarter ended in June, reports Businessweek. That would be its second year-over-year drop compared to the year-ago quarter. In 3Q 2008, Microsoft earned 46 cents per share on $15.8 billion in revenue.
Everything is teaming against the company. PC sales are only busy on the low-end, where the less profitable XP still rules. The rotton economy is having its impact in areas such as gaming, advertising sales and what-have-you. The one bright spot is expected to be Windows Server and enterprise tools. This isn’t surprising given that Microsoft made it clear in February that it was going to target the enterprise with its most expensive wares.
Oddly investors are respondinig to this news by driving up the stock price … yes, investors think another poor quarter will somehow make Microsoft more valueable and perhaps they are right. Investors have long been calling for Steve Ballmer’s head, have been aghast at how the company squanders billions in R&D with next-to-no return on that investment. If Microsoft management were different strategists than they are, that money could have been used for acquisitions and for bigger dividends that kept the value of the stock high. A few “poor” quarters could cause Microsoft’s management to rethink how they invest the company’s money.
Just as Microsoft Subnet wrote months ago, others are also noting that Microsoft’s investment in R&D borders on insane. According to a blog post a few weeks ago by fund manager and shareholder activist Eric Jackson:
“Microsoft spent 46% more than the $6.5 billion IBM invested in R&D last year, 252% more than Oracle ($2.7 billion), 763% more than Apple ($1.1 billion), and 390% more than Google ($2.8 billion). Yet, most would conclude that Microsoft isn’t 9 times as innovative as Apple …What is also remarkable about Microsoft’s spending on R&D is the cumulative total racked up over the years. In the last 10 years, Microsoft has invested $62 billion in the R&D area. Microsoft could have bought back nearly 40% of its stock with that amount; it could have beefed up its dividend; it could have made a string of acquisitions which presumably would have continued to grow its top and bottom lines more than what it has achieved organically.”
Eric Jackson concludes that shareholders and the press should be asking Microsoft to better articulate where all that money has gone and what will change if the present earnings trend continues.
Everyone loves innovation. I am the first to admit that Microsoft creates some interesting projects in its labs. But the emphasis, as Jackson points out, is all on the “R” and not on the “D.” Those cool technologies rarely materialize into products enterprises could use to improve their own productivity. (A case in point, just this week Microsoft announced that its shutting down Popfly, a tool released in 2007 intended to build Web 2.0 widgets.) In the meantime, enterprises should also be asking Microsoft why they are expected to pay more for Microsoft software while Microsoft continues to pour so much cash into a dysfunctional R&D system.
Visit the Microsoft Subnet web site for more news, blogs, podcasts. Subscribe to all Microsoft Subnet bloggers. Sign up for the bi-weekly Microsoft newsletter. (Click on News/Microsoft News Alert.)
- Microsoft releases Linux Hyper-V drivers but still wants to crush Linux
- Zero-day protection
- Microsoft utters the F-word: “free”
- Roll your own XP-to-Windows 7 upgrade on a USB drive
- Firefox Stays In The Game With Firefox 3.5
- Usability Testing SharePoint Sites: A little testing can make a big difference
- Sometimes Slower Can Be Better
- Giveaways and goodies from Microsoft Subnet and Cisco Subnet
Follow Microsoft Subnet on Twitter
