With Vista Set to Disappoint, Is Microsoft Still Gaming Analysts?

I'm on the record as saying that Microsoft's (MSFT) Vista is set to disappoint, but there is another view floating around out there. It is best captured in a note Friday morning by Microsoft axe Rick Sherlund of Goldman Sachs.

In it he argues three things:

1. Microsoft's tempering of expectations is largely about Microsoft buying into industry analysts' lower PC growth (9% y-o-y vs. Sherlund's 11%), not that it is seeing poor Win Vista takeup;
2. Spending expectations weren't up as much as some feared, making that somewhat positive; and
3. Microsoft talks down analysts at the beginning of almost every year, so this sort of thing is somewhat ritualistic.

I don't disagree with any of Rick's points, and it is particularly important to remember that Microsoft has long loved scaring analysts into conservatism early in a year, only to beat the reduced analysts through the year.

This time is different, however. Rather than saying numbers looked high, overall, Ballmer was talking down specific numbers on a specific highly important new product, Vista. While there was almost certainly an element of typical Microsoft-ian analyst gaming, this will still an unusual move, doubly so in the nervous circumstances, with an increasing number of people worried that Vista uptake is poor anyway. For Ballmer to add to those worries with highly specific concerns about that key product was testimony to how there is real problem here.

Comments

[Malkiel:]

It would be interesting to know how much MS takes in from stand-alone sales of its software (mainly OS and Office). Regardless of how the public feels about Vista that software will follow the ups and downs of hardware sales because it will be on 90+% of the machines sold. But how much of MS sales in the past were for the software by itself? And will flagging Vista sales (as compared with XP sales) hurt Office 2007, for which it is a prerequisite? Would increasing Mac sales actually help, as MS Office seems to be a popular software now for Mac? Hmm...

2007 Feb 18 03:14 PM