Dear Ziff -

I always look forward to Joe's evaluation of Microsoft's quarterly earnings. It takes me back to his work on Jupiter's Microsoft Monitor when Joe's writings on were more analytical and less sensationalistic.

That being said, I understand the need to create readership - regardless of Hearst-ian tactics used. John Dvorak mastered the flame engine, and Mary Jo Foley peddled technosmut better than TMZ covers Britney. Now Joe has to get impressions & clickthroughs... one way or another. Just promise us that you'll continue to let the 'original Joe' out of the cage once a quarter.

Thanks Joe for another thoughtful quarterly overview. And if you get the chance, consider going back to research again some day, eh?

Q3FY08 Entertainment and Devices Revenue should be $936M instead of $936B (it's a typo) :-)

So Micro$oft didn't lie, it just "presented" the figures in a way that would create favorable impression and sweep the bad news under the rug for a while. In other places that would be called misleading your stockholders.

But then why am I not surprised? It's still the same gang running the show.

I'm confused. Isn't the comparison without the one-time benefit a more accurate comparison of Microsoft's ongoing operations than is the comparison with the one-time benefit? I don't pretend to be an expert about these things but that was the thought I had when I read Joe's analysis.

Joe, when are you going to do an article on the VCSY/Microsoft lawsuit so your readers will finally learn why Microsoft hasn't been able to put out a descent product?
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FRIDAY, APRIL 20, 2007

Vertical Computer Systems, Inc. Files Patent Infringement Lawsuit Against Microsoft Corporation

Fort Worth, TX, April 20, 2007 (PRIME NEWSWIRE)? Vertical Computer Systems, Inc. (OTCBB: VCSY)( www.vcsy.com) announced today that on April 18, 2007, Vertical Computer Systems, Inc. filed suit for patent infringement against Microsoft Corp. in the United States District Court for the Eastern District of Texas. VCSY claims that the Microsoft .Net System infringes U.S. Patent No. 6,826,744.
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Microsoft's obvious motive in any suspected efforts to damage VCSY:
The two VCSY patents act as pivot points for key elements of Microsoft's continually degraded performance toward attempting to field Bill Gates' early XML vision. The vision has yet to see the light of day, although, for years prior to the granting of VCSY's SiteFlash patent 6826744 in November 2004, Microsoft was very energetic in demonstrating what they could do with XML, but still they have shown nothing.
They teach you in detective school that if you happen upon a scene and there is someone in the batch that has motive and opportunity and means, you should look at the dates and events and see if the suspect can be aligned with those. I would say Microsoft has the largest motives (which are the power and reach the 6826744 and 7076521 patents could provide Microsoft over all other manufacturers) and the most obvious opportunities (comprised of work done from at least 2000 to late 2004/early 2005 which could have put Microsoft on top of any other manufacturers were it not for the existence of the 6826744 patent) and certainly the means (which are doubtless legendary and often emphasized by advocates of Microsoft's predatory monopolistic manners).
So, in detective school, they also teach you to make note of such actors and dig into their backgrounds to see if they are in the habit of "offing" weaker associates with which they have a similar motive and opportunity. And, sure enough, Microsoft has numerous events which tag them as someone you wouldn't want to hold your sandwich while you went to make a phone call.
Looks to me like our preliminary indictment of Microsoft has numerous clues and indications which would likely drive a judge to view them with suspicion and a desire to examine. That's Microsoft's fault. Not VCSY's.
VCSY Shareholders are simply interested in the facts and they enjoy digging up factual items regarding Microsoft and apparent connections and allowing others to read.
I happen to be here to make the facts public and entertaining.
It's up to those who read to challenge the juxtaposition of those facts with the image Microsoft itself projects.
It's also up to those desiring to provide Microsoft with an alibi or mitigating facts to rehabilitate Microsoft's suspicious image. So far, nobody wants to take us up on the technological discussion. Nobody can knock out the patent claims. Nobody has offered a smidgen of evidence Microsoft can achieve Bill Gates' XML fantasies and schemes without relying on VCSY's patents 6826744 or 7076521.

So far, Microsoft looks as "innocent" as a jealous woman with a bloody ax.
"Microsoft pales when compared to the integrated oils and producers."
Oh. I see. One other area they teach you to watch for in detective school is other actors who may be willing accomplices ready to provide a misdirection for the suspect's actions. Now, we find you, Mister Wacalaca, wanting us to turn our attention to world energy problems so we can find rascals in that particular industry.
Nice try, but, last we looked, VCSY patents related to web-platforming and web-applications... a place where Microsoft said they wanted to be from 2000 until 2005. Then, they said they didn't need to be there. Then, once VCSY sent them a cease and desist, they decided they actually did want to be on the web... but they haven't been able to do so.
If Microsoft had been in the oil industry, the patents would not apply so we would have no need to be suspicious. But, thanks for giving us a perfect analogy to describe Microsoft's place in the software industry. Since they "pale when compared" to what you deride as abusive monopolistic actions in the oil industry, you've at least given us renewed confirmation Microsoft is not to be trusted.
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And if you don't believe in conspiracies? Read this about how Microsoft treated patents as they dealt with Burst, Eolas and VCSY and I think maybe you'll begin believing that some of the larger companies like 'Microsoft' feel it's their right to take IP if the company is about to go bankrupt or they can be bullied into submission.

Boy Microsoft has got a rude awakening about to happen.

http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_M/threadview?m=tm&bn=12004&tid=1279647&mid=1279647&tof=1&frt=2

I'm shocked the Xbox made that much profit! With all the bad press its getting with RROD. But what about the Zune? How many have they sold!

Microsoft inflicted Win-ME on the retailers, but still offered W-98 for a long time (for those in-the-know). And the "rocky" upgrade to W2K, while presenting great "value", (IMO more than DRM-bedraggled Vista) had way more incompatibilities than the relatively small driver problems and UAC "nags" which Vista does....

But MS made BIG money through all of the years of 98SE-->ME-->2000-->XP and DIDN'T anger their prospective customers this badly, because they didn't kill W98-SE so quickly. This time, they're giving real mind-share to Apple and Linux by being so aggressive.

With $billions in the bank, they can easily afford a year of "disappointing results". But a lot of people are sitting on the fence and not buying new PCs, feeling screwed by the sticker shock Vista requires. And just a few are switching to Apple-- not huge numbers in raw terms, but over 50% increase year over year. That's a huge increase in MINDSHARE for alternatives, and allowing that to happen is bad business. People start to see lots more Apples in coffee shops, at neighbors houses, they begin to consider alternatives.

And not just Apple- this post was brought to you on a Windoze XP PC, recently upgraded to Mandriva Linux: Mozilla/5.0 (X11; U; Linux i686; en-US; rv:1.9pre)

As you see, I'm using a test version of Firefox-3. My computer came with a "free upgrade" to Windows Vista, but I'm NEVER gonna use it. (Not on this one-- in a year or two, I'll buy a new Vista PC in order to support customers). My 6-desktop Compiz-Fusion workspace is very kewl, with effects which make Aero look like a monochrome 24-lines-of-characters-only museum piece. My security is better. My single-core Athlon-3500 runs fast, and the startup time is 23 seconds. (It's DONE after 23 seconds: with Windoze, the desktop appears but it's very sluggish, because Windoze is actually still loading stuff.)

Oh my... just had another earthquake. (Felt like it was right around 4.0, we had two yesterday....)

I bet Halo 3 and XBox Live had a lot to do with the growth of Entertainment profits. It will be interesting to see how Halo 4 pans out (when eventually built and released), now that Bungie has left the building.

Quoting Joe; "That said, removing that revenue still puts Client revenue down 2 percent year over year. Absolutely, then, there is some sales softness, just not severe."
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The numbers can be hidden in various ways by how MS is now charging for its Software. Effectively, MS with its various sku's, has raised its prices. This method, masked the fact, that Vista is selling less on new computers, and losing some market share on the desktop.

You are perhaps right, in that Vista SP1 may suck in some of the businesses to downgrade to Vista. But I think the word is mostly out now to avoid Vista.

The fact that sales of new computers were only 8 to 10%, is of more importance.

Quoting Joe; "PC growth was slower than Microsoft expected, between 8 percent and 10 percent worldwide--slower in mature markets and faster in emerging markets. OEM sales growth was 4 points slower than PC growth, in part because of increasing shipments of unlicensed PCs in Asia."
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By Mature markets it means countries like the USA. Part of the reason is the maturity, the other parts are the recession, and the resistance to getting Vista.

One point you touched on here, that should be expanded, is the pain of the OEM's sales. In the mature markets, where the OEM's have hoped to sell their high end products, the ones with the most profit, they have had the worst problems. As Mac has greatly cut into this high end market, because of people with more money, wanting to not buy a Vista computer. Also the "whiteboxes," are also cutting into the OEM's share as well. Because in a mature market country, you can buy a whitebox without Vista installed on it.

Both the recession and Vista will impact the future of MS down the road. Heck, it already has.

Microsoft profit drops as Windows sales dive; shares slide

http://macdailynews.com/index.php/weblog/comments/17098/

The following is from the link above:

"Microsoft Corp., whose Windows software dominates the personal-computer market, fell 4.6 percent in early U.S. trading after sales slumped, casting doubt on whether PC demand can hold up in a slowing economy," Amy Thomson and Crayton Harrison report for Bloomberg.

"Windows sales fell to $4.03 billion. UBS AG's Heather Bellini, the top-ranked software analyst by Institutional Investor, had predicted $4.3 billion. Sales of Office word- processing and spreadsheet applications also trailed forecasts," Thomson and Harrison report

Amy Thomson reported for Bloomberg yesterday, "Microsoft Corp. declined 5 percent in extended trading after it reported an 11 percent drop in third-quarter profit and forecast earnings that may miss analysts' estimates as Windows software sales fell."

"Chief Executive Officer Steve Ballmer has sought to bolster sales by selling more higher-priced versions of Windows, the operating system that runs more than 90 percent of the world's PCs. Those gains were limited last quarter," Thomson reported. "More Windows sales came from emerging markets, where prices are typically lower, Liddell said in an interview. Piracy rates also picked up in Asia, particularly China, Liddell said."

If piracy is to blame, then why is the BSA claiming otherwise?

(link in Spanish you can use google to translate it)
w3.bsa.org/latinamerica-spanish/press
/newsreleases/2007-global-piracy-study.cfm

Key line:"De los 102 países que abarca el estudio de este año, la tasa de piratería cayó en 62 países entre 2005 y 2006 y aumentó en 13"

Which means " Of the 102 countries in the study this year. Piracy dropped in 62 of them between 2005 and 2006 and raised in 13."

(link in English)

www.bsa.org/country/News%20and%20Events/News%20Archives/
Piracy%20Losses%20in%20the%20European%20Union%20Drop%20By%201%20Billion%20in%202006%20Study%20Finds.aspx?
sc_lang=en-GB

Key point: "This reflects the current legal situation in countries such as China, where businesses have found protecting their intellectual property rights very challenging, despite a 10 percentage point reduction in China’s piracy rate over 3 years."

I don't get it. Where is the loss due to piracy? Maybe the loss is due to the fact that prices are going up faster than piracy is going down. Thus the value loss is greater, but easily solved. Just drop the costs.