Microsoft Executive, Robbie Bach: A Master Of Bad Timing

Includes: MSFT, NTDOY, SNE
by: David Hunter

There was a bit of a kerfuffle in July when it was revealed that Microsoft (NASDAQ:MSFT) Entertainment and Division President Robbie Bach sold $6.2 million in Microsoft shares in the run-up to the announcement of the billion dollar band-aid for defective Xbox 360 units.

Executives often use scheduled stock sales to avoid any appearance of insider trading and still pick up some walking around money, but Bach’s sales were unscheduled. Now it turns out he actually sold an additional $3 million worth of shares that somehow fell through an insider sale reporting crack:

Microsoft Corp. executive Robbie Bach sold $3 million more in company stock during the period leading up to an announcement about a costly flaw in its Xbox video game console than previously reported, according to a filing Monday with the Securities and Exchange Commission.

Microsoft spokesman Eric Hollreiser said the additional $3 million in sales were not registered in a timely manner with the SEC “as the result of an administrative error.”

Normally, a company must register insider sales with the SEC within two days of the transaction. Hollreiser said Microsoft has followed the procedures required of late-filers and is now in full compliance.

As with the other transactions during the period in question, Hollreiser said the recently registered stock sales were unrelated to the Xbox repair announcement. None of the transactions were part of a scheduled plan of regular sales for Bach, Hollreiser said.

At the time of Microsoft’s July 5 announcement, Bach said that, “In the last couple of months, we started to see significant increases in repair requests … and significant attention from people” regarding an Xbox flaw known as “the red ring of death.”

Whether there will be regulatory scrutiny of this juxtaposition of events is up to the SEC, but one hopes that Mr. Bach had a compelling need for cash that led to this apparent bailout just as the necessity for the billion dollar band-aid became obvious and it was evident that Xbox 360 was going to miss its FY2007 sales targets. Neither Xbox problem caused a perceptible drop in the Microsoft share price although that’s not a mitigating factor.

As for the Xbox 360 itself, Microsoft is counting on upcoming games like Halo 3 to dispel the bad taste left by the hardware defects and this holiday season will be the test of that hope:

Microsoft may be the one embarrassed if it’s not able to solidify its No. 1 position this holiday season. “If this lineup of titles can’t move boxes off the store shelves come January,” writes Cole, “we will have to seriously reevaluate Microsoft’s long-term position in the marketplace.” If that happens, Cole believes Microsoft could be in danger of becoming a distant third in the battle for market share in the video game business.

Since Nintendo (OTCPK:NTDOY)’s Wii is currently approaching number 1 status, it looks like it is up to Sony (NYSE:SNE) and Microsoft to fight a big bucks battle for the limited hardcore gamer audience:

George Harrison, senior vice-president for marketing at Nintendo of America, describes Microsoft and Sony’s rivalry as a competition over who can spend the most money on games rather than attract the largest audience. (Microsoft recently spent $50 million on additional exclusive content for Grand Theft Auto IV, five times as much money as was spent developing the Xbox 360’s current best-selling game, Gears of War, according to statements made by Epic Games Vice-President Mark Rein.)

All of which promises to make the shareholders much more unhappy than Mr. Bach’s stock sales.

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