« Technorati Beta site | Main | The Apprentice Episode 2: Jason »
January 20, 2004
Time to short Microsoft?
Had an interesting drink with a Microsoft friend last night. He re-iterated the concern others have pointed out that Microsoft is having trouble getting renewals on many of their Enterprise agreements. Upgrade Advantage is especially troublesome being as that Microsoft is pushing so many things into Longhorn and that keeps getting delayed, there are few new products coming out to support the cost of those agreements. The fear is that there will be a significant fall off in those agreements in June and Sept of this year. Deferred revenue has always been one of the big strengths of Microsoft. It allows them to smooth out their earnings as they please. Now that bucket is emptying out. And what if Longhorn gets pushed too far out? Will the people who have been paying for upgrades hoping for Longhorn get anxious and complain? What if they want a refund for the years when Microsoft didn't ship any new products? I believe Microsoft is in for turbulent waters.
From the latest Goldman Sachs report on Microsoft:
Changes to our model: 1.) we have presumed the $770 million decline in deferred rev from $9.0 bil at the beginning of the year will fall $200 - $300 mil further in each of the next two quarters, followed by a moderate seasonal increase in the June quarter. This will likely hurt EPS about $0.02 per share this year and $0.04 next year. 2.) Also, we have made a separate change in the model to reflect the presumption that with no major new products (except for the Yukon release of SQL Server a year from now) shipping over the next 2 1/2 to 3 years, that customers currently under multi-year license agreements may become more reluctant to renew their maintenance agreements. The category most at risk is the Upgrade Advantage contracts, the bulk of which come up for renewal in June and September. As we detailed earlier (Oct 20th comments), we believe the Upgrade Advantage contract renewals could hurt fiscal 2005 EPS by about $0.08 per share if none renewed. We have now assumed that two-thirds do not renew, or an impact of about $0.06 per share. We might have been more optimistic were deferred revenues to show better near-term results, but it does not appear we will be getting any near term offsets to this exposure so we have now baked this into our 2005 forecast. 3.) The third change we have reflected in our 2005 model is a more optimistic assumption of PC demand given the strong showing in MSFT's consumer business this past quarter and the anticipation that PC demand in the corporate sector should also begin to show signs of stronger recovery.
Posted by Martin at January 20, 2004 1:15 PM
Trackback Pings
TrackBack URL for this entry:
http://www.nwventurevoice.com/cgi-bin/mt-tb.cgi/961
Comments
Post a comment
Thanks for signing in, . Now you can comment. (sign out)
(If you haven't left a comment here before, you may need to be approved by the site owner before your comment will appear. Until then, it won't appear on the entry. Thanks for waiting.)