Microsoft Q4 financial report

[cthellis42]

(At least the side looking mainly at the Xbox)

http://www.gamesindustry.biz/content_page.php?section_name=pub&aid=3846

Good for number-referencing, though it doesn't show much of a change in the Xbox's division yet. (I'd love to see their internal breakdown, though.)

Question: How much do people think their upcoming dividends might affect Xbox design and preliminaries to launch? I guess it explains why they were concerned with cost-cutting measures (which seemed a bit mystifying when looking at their cash hoard), and provided their current profits (still on the rise) are maintained they can easily absorb $75 billion over four years. But the one-time dividend will be a large portion and happen soon, and major pushes they have right now (Longhorn, Xbox 2, etc.) are themselves going to happen in about the next two years, so... Do people see that affecting the way their design their business plans and bring the products out? A financial crunch is usually unknown to them, but in this case it may be much more of an affect than normal.

 

[Tuttle]

MS as a growth company has come to an end this past week.

Growth companies create wealth for their investors by increasing their stock price.
Value companies create wealth through dividends.

http://finance.yahoo.com/q/bc?s=MSFT&t=5y

MS is unlikely to ever be anywhere near its high from five years ago or so. So to keep shareholders from dumping their investment, the company has to reward them with cash/dividends.

The important thing about MS that people don't realize is how many shares exist for the company, I think it is in the 10-11 billion range. So if your company is not growing its price per share like MS hasn't over the past few years you have to divvy up the cash amongst the shareholders. With that many shares outstanding it becomes clear that the 60 billion or so is not so big a number when it has to be divided up by so many shares.

Hopefully what has happened with MS this past week will put a reality check into the minds of all the people who have been throwing that 50-60 billion number around since '99 with claims that MS could just give away hardware for free or buy anything or everything in the console market.

 

[Evil_Cloud]

Still sad to hear Microsoft saying 'we are number two worldwide', while they are taking so much losses in comparison to Nintendo, who is in fact making loads of money.

 

[cthellis42]

Well one has to talk tough in this business. Customers don't look behind the scenes anyway.

Regardless, comments like that are off-topic and tend to side-track a thread.

 

[Lazy8s]

cthellis42:

I guess it explains why they were concerned with cost-cutting measures (which seemed a bit mystifying when looking at their cash hoard)

Companies always try to cut costs down to their minimum. It's in the very nature of business. It's not like the first Xbox's design was bloated because of a lower priority on expense (read "Opening the Xbox" to learn how MS balked during negotiations over the cost of screws even); it was made robust because the product strategy for launching so much later than PS2 called for justifying that with performance/features. The first Xbox also had to be rushed to market and didn't have the time to be well designed for future cost reductions, but they have that time for the next machine and are using it.

The fact is, they're investing even more money in the project this time around than last.

Do people see that affecting the way their design their business plans and bring the products out?

Under any conceivable scenario, Microsoft would have a lot more money to play with than any of their competitors at the very least.

 

[cthellis42]

Companies always try to cut costs down to their minimum. It's in the very nature of business.

True, but when in the past few years (ever?) have you ever heard Microsoft specifically talk about major cuts in expensis ($1 billion per year as nothing to sneeze at), announcing it in press releases and all? Usually they enjoy the image of affluence, and at the time they were sitting on a $56 cash pile and certainly had it. IMHO this goes a way to explain why they were more concerned about it and--more importantly--why they wanted to be sure their investers knew.

It's not like the first Xbox's design was bloated because of a lower priority on expense (read "Opening the Xbox" to learn how MS balked during negotiations over the cost of screws even); it was made robust because the product strategy for launching so much later than PS2 called for justifying that with performance/features. The first Xbox also had to be rushed to market and didn't have the time to be well designed for future cost reductions, but they have that time for the next machine and are using it.

I know the what's and the wherefores about the Xbox, and I'm neither saying it nor the Xbox 2 were bloated. (Though there could certainly be some.)

I'm asking what people think of their possible business plan and if their expectations change knowing what they know now.

The fact is, they're investing even more money in the project this time around than last.

...yet they've also said they will in no way be pursuing a gameplan like the Xbox in where the unit will operate at a loss over its lifespan. There were many shrugs and eye-rolls over that as well considering some of the information leaks and that they were sitting on top of so much capital, but in the past month we've seen them pulling leaner and now redistributing a lot of their cash, while the next few years will see intense effort to get Longhorn EXACTLY right, they experience more competition on home turf than ever before, still have legal battles left to fight, and don't really see any of their side endeavors taking off as they'd like.

In that light, have certain expectations changed regarding the lead up to their next launch? It's resemblance to current rumors? Its ability to launch in 2005? How the rollout may be handled? Whether they'll be focusing less on Xbox as its own beast and tying it more into their core PC strengths? (Considering XNA and all, and Longhorn going to be trumpeted louder than anything in creation.) Will...?

Anyway, you get what I mean. In some ways their attitudes have changed and certainly their financial situation is changing... have our perceptions?

 

[a688]

MS as a growth company has come to an end this past week.

Growth companies create wealth for their investors by increasing their stock price.
Value companies create wealth through dividends.

http://finance.yahoo.com/q/bc?s=MSFT&t=5y

MS is unlikely to ever be anywhere near its high from five years ago or so. So to keep shareholders from dumping their investment, the company has to reward them with cash/dividends.

The important thing about MS that people don't realize is how many shares exist for the company, I think it is in the 10-11 billion range. So if your company is not growing its price per share like MS hasn't over the past few years you have to divvy up the cash amongst the shareholders. With that many shares outstanding it becomes clear that the 60 billion or so is not so big a number when it has to be divided up by so many shares.

Hopefully what has happened with MS this past week will put a reality check into the minds of all the people who have been throwing that 50-60 billion number around since '99 with claims that MS could just give away hardware for free or buy anything or everything in the console market.

What are you talking about. They are just buying back stock. Many companies have done it time to time. It's like housecleaning, getting rid of old stuff, making way for new things down the way. In fact MS is hiring 3000 new employees and one of the things that they will be doing is giving them stock options.

 

[Tuttle]

What are you talking about. They are just buying back stock. Many companies have done it time to time. It's like housecleaning, getting rid of old stuff, making way for new things down the way. In fact MS is hiring 3000 new employees and one of the things that they will be doing is giving them stock options.

I take it you don't read or follow the financial press, ever.

 

[cthellis42]

...nor even just the link given in the lead post.

 

[a688]

What are you talking about. They are just buying back stock. Many companies have done it time to time. It's like housecleaning, getting rid of old stuff, making way for new things down the way. In fact MS is hiring 3000 new employees and one of the things that they will be doing is giving them stock options.

I take it you don't read or follow the financial press, ever.

No, I do actually, maybe you don't

 

[cthellis42]

No, I do actually, maybe you don't

Um... er... but... You see, you said they're "just buying back stock" while in the very link you posted it mentions $14 billion over four years in boosting its dividend and then The company expects to spend $32 billion on the one-time payout and then and $30 billion on the stock buyback. That would be a $30 stock buyback alongside $46 billion in other expenses, $32 of which would be made on December 2nd if the plan is approved. (And it seems like it will be. As also said in your article, Executives said there was no easy way to choose among the various options for its cash and ultimately chose to try to make everyone happy.)

No one is predicting doom and begging on street corners--as has been said this is perfectly normal for any company--exacerbated by the levels of cash they've let build up for the past 3-4 years. But it DOES certainly impact the financial situation we've known until now. And your initial comment is indeed just plain wrong.

 

[jvd]

Ms will be a growth company again.

You forget that they have no new os . That is thier bread and butter. WIth the release of longhorn in 2006/2007 they will sell like hot cakes and the company will grow again for another year or soon

 

[Lazy8s]

cthellis42:

In some ways their attitudes have changed and certainly their financial situation is changing... have our perceptions?

Microsoft is definitely making some adjustments at the parent level, but I think operations and investments are still fully on track and that this shift by the Xbox division is simply phase two of the original twenty year plan. The company's top executives have constantly been asked if they're surprised by the difficulty of the console market and whether those losses will deter them, and they've maintained from the very beginning that they're prepared to not make a profit with the first Xbox.

I think the planning for the next Xbox would be the same even if they were "the same company" still sitting on their $50+ billion cash hoard. When a very rich company that's still forecasting massive profits realizes that it's time to prepare for upcoming challenges, they don't panic and go turn their current investments and plans upside-down; they maintain their strength by keeping everything in order and just refine themselves appropriately.

 

[cthellis42]

You forget that they have no new os . That is thier bread and butter. WIth the release of longhorn in 2006/2007 they will sell like hot cakes and the company will grow again for another year or soon

My curiosity is in how the market may change up until then. Longhorn is indeed their money-maker but in the meanwhile it's also their attention-getter, and many aspects are kinda left spinning their wheels. If MS continues to try timing just about everything to Longhorn, it gives eyes the chance to wander as the luster of many things they might consider "locked down" wears off. I don't think they've ever gone this far without any many OS releases to attract attention, and I don't think we'll even be seeing 64-bit XP until the end of 2005 (and will it have the performance and utility benefits to really promote it and attract attention? Current testing seems to show that as worrysome right now).

Longhorn looks to be shaping up to be a tricky creature upon which a LOT of Microsoft rests. And it could be three years away.

Microsoft is definitely making some adjustments at the parent level, but I think operations and investments are still fully on track and that this shift by the Xbox division is simply phase two of the original twenty year plan.

True, and I have full confidence in their ability to bring in massive revenue and continue shifting their plan and support it as they desire as we move from generation to generation, but I'm certainly not talking about twenty years. (Nor would I care about it--as if speculation of 2001's market could possibly have been done in 1981 OR 1984! ) I am only talking about current effects and what people think regarding Xbox 2's specs (technical, launch, and otherwise). Within THIS year--if they stick to current launch expectations--is where everything is locked down, mass production is will on its way, much developer-wrangling will be going on, and much of the business plan for the first few years will be mapped out.

The company's top executives have constantly been asked if they're surprised by the difficulty of the console market and whether those losses will deter them, and they've maintained from the very beginning that they're prepared to not make a profit with the first Xbox.

This is neither in question nor a point. There ARE, however, various expectations and conflicting comments regarding Xbox 2. Meanwhile tech specs still have ghostly, shifting outlines and no concrete announcements have been made in a long while.

In essence, all I was asking is if any of the possibilities have solidified or altered in peoples' minds given Microsoft's business adjustments in the past month. Neither the Xbox nor the future of the brand is in question--nor even a factor. (We all know the Xbox's initial designs and though it can be used as a reference in some ways, using a fifteen-year guess as a reference point is pretty rediculous.)

When a very rich company that's still forecasting massive profits realizes that it's time to prepare for upcoming challenges, they don't panic and go turn their current investments and plans upside-down;

A very rich company also doesn't make huge restructuring without factoring in their likelihood years in advance as well. We, however, are given a bit more clarity as to their underlying, overall plans. My initialy comment wasn't worded as carefully as it should have been, but I'm not asking "What is Microsoft on the Xbox 2 changing now that they don't have so much cash?" but "What do you think in light of new information?"

Overall, I don't think they're scurrying around trying to change the plans, but I do lean a bit more conservatively than I would have otherwise. (Of which I've already been leaning in, because Microsoft seems to always be unable to keep secrets, and we're not seeing much about a product that pretty much have to be rolling off in mass quantities by this time next year.) I don't see the confidence I'd usually expect. They had their (updated) release date for the Xbox announced two years previous and if I recall correctly the details of most major chip specifics would be coming in the next few weeks to keep the same schedule.

<shrugs> Just makes me wonder.

 

[jvd]

longhorn is going to be much more streamlined than many are expecting and its going to be a great stride at getting rid of some of the stigmas associated with ms and windows .

Its also going to usher in a new era of pc gaming and will support x86-64 much better than the current windows 64 does (which will only sell oem )

 

[cthellis42]

It damn well better, if it's going to wait that long. Problem is, even if the thing launches flawlessly, they may find themselves in a different market than they expect. OSX whips out great advances with every release--including versions of much-touted Longhorn features (holy crap Spotlight makes me wet!) and amazing UI enhancements that keep coming out as we go along so people will be USING them for years, and they'll be getting supported, refined, and enhanced along the way. Linux has a lot of its own versions out--and hey, ~3 years to work on them--so although we'll never see as clean and crisp a version of Linux as we will OSX or Longhorn, they'll still be taking long strides along the way. (And the ones leaning towards Linux to begin with are those who appreciate the options and custimization they can access along the way.) Even they've been getting more play on the consumer desktop of late. (And various open source solutions certainly made inroads--and keep expanding--in the more technical arenas.)

As much as Longhorn will look amazing compared to XP, the longer it waits the less unique it gets and the more inroads their competition can make. Windows has certainly needed a huge revamp and reimagining, but I don't understand why they're letting their current state idle as much as they do. 2-3 more years of maintainance and security patching being the headline news articles certainly won't help their reputation.

There's a certain logic to coming out like a bat out of hell with a release, but it doesn't guarantee an immediate hurdling back to one's most-prominent position. The larger competition grows, the harder it is to dislodge.

And while Microsoft can easily "afford to do this" I don't see it as at all beneficial to do so. Current operations should have a whole lot more concentration, enhancement, and excitement to keep them in the public eye and keep good press overriding the bad.

Certainly they could afford to do that too, eh?

 

[-tkf-]

longhorn is going to be much more streamlined than many are expecting and its going to be a great stride at getting rid of some of the stigmas associated with ms and windows .

Its also going to usher in a new era of pc gaming and will support x86-64 much better than the current windows 64 does (which will only sell oem )

Still feels like a long way from a release, hopefully linux and OSX will gain some market so we can get some more competion.

What would help games in Longhorn?

 

[Fafalada]

and will it have the performance and utility benefits to really promote it and attract attention? Current testing seems to show that as worrysome right now

Does it really need to?
MS had no problem shafting mainstream market with a stop-gap solution for over 5 years (win9x family) heck some would argue that was their biggest success.
And while XP fixed the most sore issues with 9x, it certainly didn't bring anything worth mentioning in terms of utility. While performance of course decreased, but that's what new OS releases are for anyhow, gotta make people upgrade hw too
Speaking of Longhorn, given the hw it seems to be targeted at, releasing it before 2006 looks a bit pointless if it's supposed to be a mainstream OS.

various expectations and conflicting comments regarding Xbox 2. Meanwhile tech specs still have ghostly shifting outlines and no concrete announcements have been made in a long while.

While they are by no means official - the spec leaks for Xenon have been in some ways more detailed then publically released specs for Xbox1 ever was, even up to this day.
Granted, public wants to hear more official word on it, but compared to thus far completely non-existant info on Revolution, and PS3 vapour-ware hyping, I'd say X2 stuff seems damn concrete in comparison.

 

[Farid]

What would help games in Longhorn?

It's supposed to switch to a "light weighted" core while running games, a sort of "Game OS", IIRC. And it will also have Xbox live (or something that use the same formula) implemented, and a better management of the gamepad (for example only one "universal" model of gamepad for the PC (and maybe Xbox)).

 

[jvd]

What would help games in Longhorn?

It's supposed to switch to a "light weighted" core while running games, a sort of "Game OS", IIRC. And it will also have Xbox live (or something that use the same formula) implemented, and a better management of the gamepad (for example only one "universal" model of gamepad for the PC (and maybe Xbox)).

Right along with the a new feature set 4 years in the making. Remember dx 9 and sm 3.0 has been around in the ip for almost 2 years (novemeber will be two years ) So there will be a huge jump from the current hardware to the dx 10/ longhorn version.

Also to run all the nice graphical stuff you are going to need a dx 9 card. This will cause a huge upgrade at the home bases . Which will give the pcs a good boost .

Currently most users still have a dx 6 lvl graphics chip in thier pc