Good Questions in the Echo Chamber
Via Tim Bray's post Go od Question comes this post from Brad DeLong: M$ FT. Basically, it's a question about where all that Microsoft R&D money goes. Snippet:
What will users have to show for R&D expenditures that may crack $9 billion this fiscal year? What will shareholders have to show for this $9 billion. I know, they say "10% sales growth." But what would sales growth be if R&D were cut back to, say, $1 billion?
Well, several questions I guess. Tim especially wants to know what the Selling, General and Administrative Expenses is comprised of.
These questions should be easy for our leadership to answer... should anyone ever ask them and then not settle for a vague handwaving answers about innovation. Sorry, but I think all the analysts and interviewers have finally gathered up their skirts to avoid anymore sunshine from being blown up them. But yet we still blow sunshine when we should be shipping product (thumbs up to MSN as of late).
Brad, Tim: I work here and even I have scratched deep ravines into my scalp trying to usher forth a good explanation about where all that money has gone (though right now I have a mental image of Franklins swirling around a big drain). The recent on-campus Microsoft Research TechFest was a nice diversion and all (ooo, free laser pointer!), but it sure didn't feel like a billion dollar experience, let alone billions-and-billions (I have a feeling that an experience like that would still be with me).
A track back to Brad's piece leads to Mmmm... let's call our customer's dinosaurs! which leads back to, oh, today's earlier post.
9 comments:
Here's an good article that goes into further detail:
http://www.smh.com.au/articles/2004/11/22/1100972316458.html?oneclick=true
The Google compare is especially illustrative imo and I strongly agree with this statement:
"If they didn't have $61 billion in cash, if they had only $40 billion but they had dramatically stronger strategic positions in games, or (digital) music, or technology in the home - which is where they really want to be - then people would think very differently about this company."
Bottom line, MSFT R&D's historical contribution is a joke and since the company can no longer grow worth crap and the stock is flat, they should either fix it or take a chain saw to this MASSIVE budget and return that money to the bottom line where it might help the stock. Meanwhile, every time Ballmer talks about the company having been "built on innovation", the industry, users, and even many supporters, let out a collective groan. Then again, he was the same guy who started this year saying the stock was the "best poised to appreciate since 1998" and here we are within a heartbeat of setting a new 52-week low. Maybe while you're cleaning the R&D house, a change at the top is in order too? At a minimum, someone might want to remind him that his job is to increase shareholder value - not lead the market in destroying it.
Quick note: the R&D numbers are *not* just MSResearch. MS also counts "developing Office 12" as R&D. And possibly "fixing bugs in Office 11."
The previous post hits the money. When you go to MS Market and buy a new hard drive, if you are an SDE and developing new products (if that still goes on around here), you can pick an account in the R&D realm, you're spending part of that $9bil, and the company gets way fovorable tax treatment on that purchase.
My guess is the MSR cost centers represent very little of that $9b
Yes indeed, the previous two posts are correct. Actual spend for MSR is about $250m/year, I believe. The salary of every single dev, tester, and program manager on every single shipping or soon-to-be-shipping product is counted as "D" in "R&D."
Also, you remember all those little legal settlements and fines you've been reading about for the last three years? AOL ($750m), Sun ($2b+), the EU ($600m), Novell ($400m+), Intertrust ($440m), Be ($23m), Burst.com ($60m), and the state antitrust cases (several billion)? Those get counted as...SG&A! Ta-da! That's why that number's been rising for the last couple years. SG&A is also where Microsoft put the one-time underwater-option-buyback program which is indeed a "special incentive" as one external commentator noted--but not to customers, to employees.
Folks commenting on Microsoft's financial position and lack of innovation often seem to forget that the company was found guilty of antitrust violations. Although the DoJ penalty was a slap on the wrist (relatively), it paved the way for all these private lawsuits, which have really hurr the bottom line. Now that most of those are out of the way, and Microsoft has "fixed" the employee compensation factor regarding stock options, there's room for profit growth--even if revenues stay stable (which they will).
The question is whether, like happened at IBM when they settled their 11-year antitrust suit with the feds, whether the outgrowth of this suit will be timidity and lack of innovation.
"...there's room for profit growth--even if revenues stay stable (which they will)"
Thx for that John Connors but aren't you leaving now and didn't you just sell 500K of your 800K shares despite the stock being near 52-week lows? BTW, how is 8% growth this year and 6% next year stable? Plus, aren't we expecting a pop when all that "innovation comes out with LH and related?
"The question is whether, like happened at IBM when they settled their 11-year antitrust suit with the feds, whether the outgrowth of this suit will be timidity and lack of innovation."
Nah, the former has already happened and the latter wasn't ever true (see topic of post).
"Obviously, we all want to increase the value of our stock, and we have the best opportunity to do that since the end of FY98. Our stock was around $25 then, as it is now, and we have more than doubled our operating profits since."
Steve Ballmer memo to employees 7/04
"MSFT sets new 52-week low"
3/05.
Could this guy be more out of touch? Time for Monkey boy to go.
You a funny one. I wish I was Connors, I could use the millions.
I actually meant "revenues stay stable." As in 0% growth. In other words, even if there were 0% growth in FY'05, which there won't be (you're right, I think they're saying 8%), it would still look like profits are improving because of the host of "one-time expenses."
I think 0% revenue growth is a real possibility in FY'07. If so, look out middle management.
why 0% in 07?
Slight tangent here but does anyone else remember when they had the best fucking eurest cafeteria in redmond over there in 113. Not sure how it is these days but 2 years ago, the menu there was amazingly better than the rest of campus - heck the first time I was there I was sure this WASN'T Eurest food.
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