Here’s a shocking fact. Microsoft reported yesterday that it lost money in the second quarter. That’s never happened before. Literally in the course of Microsoft’s existence as a publicly traded firm it’s never posted a quarterly loss. But in Q2 it lost 6 cents per share.
Interestingly, markets aren’t freaking out and Microsoft’s stock isn’t tanking. That’s because investors seem happy to accept Microsoft’s view that this is basically all just a matter of accounting gimmicks (“the previously announced non-cash, non-tax-deductible income statement charge of $6.19 billion for the impairment of goodwill and the deferral of $540 million of revenue related to the Windows Upgrade Offer”), and the company offered a parallel non-GAAP earnings measure showing very solid 7 percent revenue increase and 12 percent operating income increase.
I’m not actually sure how reassuring I would find any of that. If you look at the statement, the basic structure of Microsoft continues to be that it has highly profitable franchises selling Windows and Office and enterprise server software yoked to a staggeringly unsuccessful online services division (they’ve lost $9 billion over the past five years of which $2 billion was lost in the past year, and that’s not counting billions spent on acquisitions) and with no real theory about where to go. This structure is a great boon to human welfare, since it ensures that Google faces a well-capitalized and technologically sophisticated competitor that prevents it from exploiting its dominant market position in an abusive way. But that would give me relatively little solace as an owner of Microsoft. The way Bill Gates has worked his philanthropic endeavor was to take Microsoft’s high equity value, turn that into personal wealth, and then turn that wealth into a well-endowed foundation.
Steve Ballmer is instead deploying the shareholders’ resources on a very expensive beneficent effort to check Google’s search monopoly. And his latest business strategy involves hiring Mark Penn, which I initially thought was a joke.