Although my eyes were open,
They might just as well have been closed.
And so it was later,
As the miller told his tale,
That her face at first just ghostly,
Turned a whiter shade of pale.-- "A Whiter Shade of Pale," by Procol Harum, from the 1967 album Procol Harum
The tenor of a presentation can sometimes tell you more than the facts in it. In the case of Microsoft's (Nasdaq: MSFT) earnings report and analyst call last night, the takeaway is this: Management does not want us to think too hard about the numbers.
From the top, with feeling!
Let's start at the top of the press release: "Microsoft Reports Record Third-Quarter Revenue."
That's a rather milquetoast earnings headline, underscored by how slim the record margin is. $14.45 billion in revenue beat the year-ago figure by 0.4%. It's an all-time high as far as fiscal third quarters go, but if you read the title as "no quarter has ever beaten this third-quarter sales figure," you'd be wrong, because second-quarter revenue was 12% higher. It's a narrowly defined all-time high.
Net income and earnings per share were not of record-breaking caliber at around $4.4 billion and $0.47, compared to $4.9 billion and $0.51, respectively, during the same time last year. The numbers were presented in terse language without the highlighting of customary comparisons to, or percentage changes from, previous years or quarters. "Move along, nothing to see here!"
A whiter shade of pale
There just wasn't much substance worthy of shouting from the rooftops, except for a $4.36 billion increase in cash equivalents in the quarter. Because the company slowed its share repurchase program this quarter to $1.2 billion ($3.8 billion less than the quarterly average), that's 13 times the average quarterly haul over the last three years, but management didn't comment on that item at all -- not in the press release, and not in the conference call. Obviously, the company is saving up fuel for a serious run at buying Yahoo! (Nasdaq: YHOO), but would rather go about it quietly.
If Redmond wanted to show some enthusiasm and make a statement here, the CEO or COO could have at least made an appearance on the call. But as usual, the presentation was handled entirely by CFO Chris Liddell and investor relations manager Colleen Heally, while Steve Ballmer catered to a tech conference in Madrid.
Skip this light fandango, Steve
What Liddell did say about Yahoo! left me thinking that the deal is about as likely to fall through entirely as it is to go hostile. The cash buildup might signal the latter path, but it's not exactly earmarked for that purpose and could just as easily be funneled back into stock repurchases again if the fighting spirit fizzles out.
Microsoft as a whole doesn't have a lot to brag about these days -- or it would be doing exactly that. That's why the Microhoo proposal is such a big deal for Ballmer, who wants to rebuild a flagging online segment to prepare for a possible software-on-demand future. But Google (Nasdaq: GOOG) must be quietly cheering the deal on; it would instantly hobble both MSN and Yahoo!, since they would have to work through a very difficult integration of corporate cultures, a strong echo of AOL / Time Warner (NYSE: TWX) in years past. No, that's definitely not a good thing.
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