The numbers being thrown around are impressive...the righteously indignant tone comes through loud and clear...and check out all those the hot-button topics: corporate waste...mismanagement...robbing the shareholders...it goes on and on.
I can see it now:
TV Newsdirector to her staff somewhere - Oooh kiddies
- sure looks like this one's gonna hit a spike on the 6 o'clock slot tonight! We can milk this non-story for at least a week! Start lining up the experts for commentary and find out what Geraldo's got on his plate. And somebody please
call Ballmer and ask him how Microsoft intends to address this "new crisis." Be aggressive when you call. I hear he's got a short fuse. Maybe he'll loose it and give us a really good soundbyte!
Actually, the bulk of this "story" seems to be the result of noises being made by a Mr. Craig Montgomery and something called The Crandrea Group. Supposedly this group is made up of shareholders, but details on Montgomery or this group are few.
So I'm going to say the blogosphere and media are once again running (and giving credence to) a bogus analysis put out by a crybaby.
A couple of things:
1. There is not a 1 to 1 relationship between R&D spending and revenues. If you increase or decrease R&D spending, you do not automatically get a proportionate increase or decrease in revenues. If that were the case, savvy companies would either be spending everything they could on R&D - or eliminating it from the budget completely.
One observation that does seem to be true, is that tech companies that don't spend enough
on R&D don't stay in business. The big problem is nobody can accurately predict just how much "enough" is.
2. Some technologies cost much more to develop than others. For the most part, Apple produces what amounts to sophisticated consumer appliances. Most of Apple's "research" is in consumer marketing and design. They do little or no basic research. Microsoft does invest in research that furthers the state of the art. I don't think it's wholly accurate to compare the two companies in this area.
3. Revenues do not scale in a linear fashion. There are revenue peaks in dips in most industries. It is relatively easy to hit the $1 million mark. Economies of scale and more efficient marketing begin to cut in at a certain point after that. That's usually when you'll see the growth spurts a lot of tech companies experience.
But going from $20 or $100 million to $1 billion is a much more difficult proposition. Large revenue business have breaks put on them due to legal constraints, increased organizational complexities, shareholder interference (i.e. funds & institutional investors), and government regulatory agencies.
Once you're big enough, everybody wants a piece of your action.
And continued revenue growth always becomes more and more difficult as markets mature and reach saturation.
My basic take on this story is that some investor, or group of investors, is disappointed with Microsoft's revenue and stock projections. And as is usually the case with these people, they're quick to apply stock market-style "technical analysis" to account for what is happening. But even though technical analysis is widely used (and garners much respect) in the investment community, it's still a pseudo-science. Beneath all the formulas, charts, and esoteric terminology, it's just another horoscope.
And just making a statement doesn't prove anything, no matter how many numbers get cited to go along with it.