Friday, April 28, 2006

Update on the Big Microsoft Drop

There's a blog out there called Infectious Greed. It's written by Paul Kedrosky, a venture capitalist living out in San Diego, California. I ran across a link to his blog on while reading the great English prose on The Inquirer. One post he wrote yesterday (the 27th) titled "Microsoft's Pig in a Poke Problem" covers a very important issue with regards to Microsoft and explains in part what happened today with Microsoft's share price drop. It's short enough that I'll quote the entire post.
I've been a Microsoft stock booster this year, arguing that the company was heading into the strongest product cycle in recent memory, driven by Windows, Office, and SQL Server upgrades, plus, plus.

But this latest news kills the story. By, in effect, diverting all the windfall profits from these new product releases into much more questionable businesses -- Xbox, Windows Live, etc. -- Microsoft is asking shareholders to buy a pig in a poke. It wants people to ignore how poorly it has done in retooling itself in recent years, and then let it burn an entire product cycle's profits in pursuit of Google, as well as the gaming market.

No mas. Some may buy this, but most thinking shareholders are going to say no way. There are many things you can say about Microsoft, but one thing is relatively certain: The further it gets from its Windows hegemony the worse it does. And by chasing after Google in search and ad serving, and after Sony et al., in games, Microsoft could hardly be further from home turf.
Couple this view with the lower-than-expected earnings announced today, and it explains a bit more (to me, anyway) why so many investors seemed to be voting with their feet and heading towards the exits. Just to make it more interesting, he has another later post titled "Black Days in Microsoft History". In that post he shows the 10 worst trading days in Microsoft's stock history. The two worst were of course from Black October 1987. He has a little contest going on where you get to guess what event was associated with the other seven he has on his chart.

I never realized VCs had such a sense of humor.

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