Posted January 22, 2009 10:00 am by with 4 comments

Tweet about this on TwitterShare on LinkedInShare on Google+Share on FacebookBuffer this page

Microsoft missed Wall Street estimates for its quarterly earnings and announced it would cut 5,000 jobs, but I don’t believe either of these two factors play a major role in the 8% share drop this morning.

I’ll tell you why and then I’ll tell you what’s really accounting for the decline in PPS (price per share) today.

First, the earnings miss. OK, so MSFT missed Wall Street expectations by 2 cents and its profit dropped from $4.71 billion this time last last year to $4.17 billion. But, it’s overall revenue grew from $16.63 billion to $17.1 billion in the same period. So, that suggests that the money is coming in, it’s just that Microsoft needs to shed some excess baggage expenses.

That’s why the company is shedding 5,000 jobs–about 5% of its workforce–over the next 18 months, starting with 1,400 going today. The company has obviously identified areas where it’s bloated and is taking action to reduce jobs in the areas of research and development, marketing, sales, finance, legal, human resources and information technology. However, the company is also planning to add up to 3,000 new jobs in the same time period – so this is more a restructuring than a mass layoff.

All told, Microsoft hopes to save $1.5 billion this year–which certainly helps with the bottom line.

OK, so why do I–a non-financial analyst don’t forget–believe that Microsoft’s share price is down 8 points this morning. Here’s the answer:

[Microsoft] said it could no longer offer profit forecasts for the rest of the fiscal year.

That’s what’s scaring the pants off Wall Street right now. It could well be that Microsoft doesn’t expect to see a continued decline in profits, but at the same time doesn’t want to try and predict an unpredictable market. However, Wall Street is absolutely lost without some kind of forecast from the company itself–just look at how they flap around in the wind, without guidance from Google!

In other words, Wall Street is slapping MSFT with a “we don’t know” penalty on its PPS.

What’s your take on Microsoft’s announcement? What do you think of my assessment?

  • Makes sense to me. Do lots of other companies that size say they cant off profit forecasts for the rest of the year in January?

    Jaan Kanellis’s last blog post..Google Analytics Help, Questions, Answers Comments, Etc.

  • @Jaan – it’s not quite that bad as I believe they are talking about the rest of their fiscal year, which has just 2 more quarters left. But still, pretty scary.

  • Pingback: MSFT Shares Down 8% - Why I Don’t Think it’s Due to Announced Job … | WebTuts()

  • If wall street expects profit forecasts and they cannot be given, of course that will scare investors. Even at the best of times, you want to invest with certainty. But in uncertain times, everyone is jittery. And with the way Google is encroaching on Microsoft…still increasing search market share, buying up apps like Feedburner, building apps like Chrome… That said, earning forecasts are only as good as the rosy assumptions on which they are made, right?