Microsoft's Market Cap Falls $24B in 17 Days
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News Commentary. Microsoft was one the day's worst high-tech stock casualties, in terms of free-falling share price. |
Microsoft's problem: economic fears run amok, unchecked by reality.
The stock market was jittery all day, but more so as the House vote on a $700 billion bailout approached and later failed. Most tech stocks plunged. Barrons put together a hit list of the most affected tech companies, which combined lost $111 billion in market capitalization.
Microsoft is on the list. Today, the stock closed at $25.01 a share, down $2.39, or 8.72 percent. But Microsoft was climbing in after-hours trading. Where does the day put Microsoft? I want to take a broader perspective and go back nearly three weeks—seemingly an economic eternity—to the day before the most recent crisis unfolded. By coincidence, on Sept. 12, I compared Microsoft's market cap to Wal-Mart's. A day later, Lehman Brothers started to unravel, as bankruptcy loomed and no white knight could be found. Microsoft's market cap: $252.18 billion. Wal-Mart: $245.52 billion.
Today, things changed. At the end of trading, Microsoft's market cap was $228.35 billion, or $1.59 billion lower than Wal-Mart's. In the past 17 days, Wal-Mart's market cap declined $15.58 billion. Microsoft's declined even more: $23.83 billion.
Yesterday, Om Malik asked the question many had asked in worried, whispered gossip: "Will the credit crunch hit Silicon Valley?" Some questions are best left unanswered. Om asked the question with respect to getting credit. But the answer came in today's stock bloodbath: Frack, yeah.
If Microsoft took a beating, so did some of its major competitors:
- Apple: Closed at $105.26 a share, down $22.98, or 17.92 percent. Apple had unique problems. A couple negative analyst reports assured shareholder panic, regardless of today's meltdown.
- Research In Motion: Closed at $61.73 a share, down $9.03, or 12.76 percent.
- Sun: Closed at $6.75 a share, down 89 cents, or 11.65 percent.
- Salesforce.com: Closed at $44.76 a share, down $5.89, or 11.63 percent.
- VMware: Closed at $26 a share, down $3.04, or 10.47 percent.
- Google: Closed at $389 a share, down $42.04, or 9.75 percent. Google could be in trouble simply because its share price crossed a psychological barrier: $400. On May 5, the stock was $594.90 and $741.79 on Nov. 6.
- Oracle: Closed at $18.77 a share, down $1.85, or 8.97 percent.
- Cisco: Closed at $21.79 a share, down $2.03, or 8.52 percent.
- Red Hat: Closed at $15.33 a share, down $1.08, or 6.58 percent.
- IBM: Closed at $111.46 a share, down $4.96, or 4.15 percent.
The bloodbath far exceeded the tech sector. Exxon Mobile: down 8.17 percent. Whole Foods: down 5.43 percent. International Paper: down 7.4 percent.
Fear Is the Problem
No matter what happens with the government's proposed $700 billion bailout, we're not in Kansas anymore. Today's stock market whirlwind blew in like a tornado and lifted away Dorothy's house. But there is no sleepy dream to take us to Oz. There's no yellow brick road. The scarecrow laments, "If I only had a home." The tin man: "If I only had savings (and no debt)." The lion: "If I only had credit."
The economy is unraveling, or at least that's what people fear. The perception was enough to sack stocks of tech companies with solid balance sheets and consistent profits—Microsoft among them.
Tomorrow is another day. Fear doesn't have to rule the day. But that's the problem with the credit crunch and the proposed $700 billion bailout: fear. Writing at Boing Boing earlier today, Douglas Rushkoff rightly identified the fear the bailout sought to excise. The plan had been for the "government to buy distressed assets—like mortgages"—that might still be repaid. He explained:
"These are debts that are selling way, way below their long-term value. No one wants to pick up anyone's mortgages because housing prices are going down, foreclosures are going up, and shareholders of banks don't want them on the books. So a package of mortgages that might be worth a million bucks in the long term if they're all paid back is only getting, say, $200,000 on the market. That's what's shrinking the credit markets. So the federal government wanted to buy all this credit at a higher rate, bail out the creditors and take on the mortgages."
Douglas gives one of the most concise explanations for the bailout, also identifying its cause: fear. Assets with great long-term value that nobody wants. I'm not taking a position for or against the bailout, but I'm standing against fear. The fear crippling credit markets. The fear leading to today's stock market bloodbath—or bloodletting, if you prefer. The fear that tomorrow will be worse.
I'll make a bold statement: The economic fear gripping America today is some ways worse than what swept the continent seven years ago, following the devastating 9/11 terrorist attacks. How strange that two days after the seventh anniversary of those terrorist attacks that major financial institutions were rocked. Lehman Brothers collapsed. Bank of America absorbed Merrill Lynch. AIG swayed but was saved by the federal government's $85 billion line of credit.
Leadership Can Change Perceptions
Only fear could strip $24 billion from Microsoft's valuation in just 17 days. Only fear can stall the high-tech industry's massive growth. The risk: fear of investing in startups; fear of lending small and medium businesses capital to buy better computers and software; fear of putting too much money into research and incubation projects.
Microsoft has taken the stand on the bailout that I wouldn't. "Microsoft strongly urges members of the U.S. House of Representatives to reconsider and to support legislation that will re-instill confidence and stability in the financial markets," company General Counsel Brad Smith said in a statement. "This legislation is vitally important to the health and preservation of jobs in all sectors of the economy of Washington State and the nation, and we urge Congress to act swiftly."
Over at Tech Ticker Sarah Lacy writes: "Already, RBC Capital Markets says 40 percent of people plan on spending less money on electronics in the next 90 days, the weakest outlook the bank has ever seen." I regard the RBC research as fear mongering, even if it's true. Question I would ask: Does the bank benefit from tech-sector fallout? Spending less means what? Less could still be lots of spending.
It's time for Microsoft and other companies in the high-tech sector to lead others, to take responsibility to quell the fear. Brad's statement isn't enough. High-tech companies must act like there will be no bailout.
There are reasons why Microsoft CEO Steve Ballmer is on a five-city European tour this week. Other high-tech leaders should do likewise. Go out and meet customers and investors. Instill confidence in your companies and products and the high-tech industry's contribution to the country's health.
Exports are way up, and emerging markets will buy technology because they're still building infrastructure. They'll spend even if there is a global economic slowdown. There are plenty of reasons not to be fearful. As I've written so many times on this blog: In business, perception is everything. Right now, the perception is impending doom. Because people are afraid, and they shouldn't be.
[Please send your tips or rumors to watchtips at live.com.]
Comments (18)
What this country needs is someone like FDR. "The only thing we have to fear is fear itself." Unfortunately, neither of the pandering fools running for president are remotely like FDR.
So, Joe, perhaps you are right. Steve Ballmer's most valuable trait would seem to be unbridled enthusiasm. And one thing I started to notice after reading your blog entry is that his enthusiasm inspires Microsoft employees, Microsoft partners, Microsoft customers... and Microsoft competitors. He inspires everyone, for and against Microsoft. In this capacity, he is more like FDR than anyone else we have.
A bailout is likely to be the worst course of action. A bailout of "Wall Street" only encourages the unregulated billionaires behind this mess and frees them from accountability for their actions. A bailout of "Main Street" only encourages those who sign up for mortgages they cannot afford and frees them from accountability for their actions. And a bailout of one or the other or both only punishes the dwindling numbers of responsible people for the actions of the irresponsible.
And so what does Steve Ballmer do? Does he run to Washington for handouts to bail out Microsoft? Or does he spread encouragement and hope among his more promising near-term markets? Begrudgingly, I must admit, my respect for Steve Ballmer is increasing by leaps and bounds.
Posted by Philosopher | September 29, 2008 10:26 PM
While Micro$oft took a beating in the stock market, even should the world economy go into recession or depression, this is one company that should survive it. Microsoft is like the cockroach that is most likely critter to survive an atomic war, in economic terms. Unless, of course, Steve Ballmer decides to spend off too much of the bankroll, on stock buy back or Yahoo type companies.
Sure Microsoft has some short and long term negatives coming up, with Apple resurgent, and linux gaining on the low end.
Where I see the failure of companies, close to Microsoft, which will impact them, will be some of the OEM's that will fail, should the world economy tank. Because I believe that Apple will not be as affected at the start of this downturn in the economy, as the richer classes will not be affected at first, unless the recession is longer term. OEM's that sell their computers with Windows on them, will be affected first, as their are selling mostly to the middle class and lower class, those most affected by the downturn in the economy.
As far as the economy in the USA, hate to say it, but it looks bad. The bailout of the banks will not be the end of it. Its only the beginning. The banks will be back with their hands out, when more and more of the middle and lower classes default of home and credit card loans, as things get tougher. The auto industry just got an 25 billion (bailout?) loan. The airlines in the USA are in trouble again, becoming prices beyond most peoples means, and becoming basically a service for businesses. Airlines are in line for a bailout again as well. Then there are the Marketplace, the stores, which are already doing poorly. Expect more to fail there. I do hope I am wrong about the economy.
Posted by chips b malroy | September 29, 2008 10:26 PM
AAPL was down 17%. Apple was downgraded on Monday by two analysts who felt that the economy will impact AAPL because of its dependence on consumer spending and also bemoaned Apple's lack of a sub-$1K laptop. Mr. Jobs may have to take some pricing actions to maintain sales momentum. As far as MSFT and WMT, the former is traded on NASDAQ; the latter is traded on NYSE. NASDAQ has suffered sharper declines of late. MSFT is also a component of many funds and some of the stock declines are being driven by fund redemptions. Interestingly, MSFT is in the process of doing a $20B buy back--the lower the stock prices, the more shares they can buy and retire, potentially increasing the stock price by having fewer shares available for trading.
Posted by davidG | September 29, 2008 11:24 PM
Just finished watching 'Mad Money' with Jim Cramer. With the failure of the bailout, the stocks will only get hammered further this week. Cramer is predicting a total blood bath in the next 4 days. I can't believe that he just mentioned the 'D' word (depression).
Now for some really depressing news:
It's worse than you think. The country is completely broke. See the pretty slides at
http://perotcharts.com/
Posted by JM | September 29, 2008 11:52 PM
I think this whole problem is caused by panic and fear-mongering. Like you say, 60% of people planning to spend the same or more on tech is probably still a very big number. Remember that's just a US figure and the world is not only the US.
I think Microsoft will fare worse than any of the others because they rely mainly on large business subscriptions. Business are the most likely to clam up because they are saving their cash and reducing their borrowing. Just adding some magic is unlikely to convince the businesses to spend real money.
Christmas will still happen and the iPod will most likely be the best selling tech this year. XBox is almost saturated and the Zune is not available in most of the world.
Posted by billybob | September 30, 2008 7:41 AM
Philosopher :wrote
"And so what does Steve Ballmer do? Does he run to Washington for handouts to bail out Microsoft? Or does he spread encouragement and hope among his more promising near-term markets? Begrudgingly, I must admit, my respect for Steve Ballmer is increasing by leaps and bounds."
----------------------------------------------------
From what I read, Steve Ballmer only sleeps 4 hours a night, has boundless energy, has a high IQ.
I been saying this for awhile, Linux needs a Steve Ballmer type.
Posted by Ralph | September 30, 2008 8:05 AM
Linux already has a Steve Ballmer type, he is currently serving 15 years to life for killing his wife.
Posted by billybob | September 30, 2008 8:28 AM
@Ralph:
Re: "Linux needs a Steve Ballmer type."
Ah, but in a sense they have Steve Ballmer himself. Microsoft in general, and Vista specifically, have done wonders in boosting the credibility of both iMac and desktop Linux. And driving Microsoft into new territory at the same time.
As I alluded to already, I am beginning to think that Steve Ballmer is part of the rising tide of enthusiasm that is helping lift all boats.
@billybob:
No, it's Linus Torvalds. Duh!
And for the FSF, it's Richard M. Stallman. While he is not a mainstream business type (understatement of the century), he is the brains and drive and sheer force of will behind the FSF which produces all of the utility software that builds and runs on the Linux kernel, making up the operating system popularly referred to as Linux (when in fact the operating system is really much more than just the Linux kernel).
And for building confidence in the tech sector, it's Steve Ballmer as cheerleader.
Posted by Philosopher | September 30, 2008 9:21 AM
For whoever was complaining about me using M$ rather than MS, with this stock reduction, I guess I have no reason to use M$ anymore. I wonder what this does to their stock buyback and dividend plans? Do they really have this money to spend? Can they borrow it on a tight credit market now?
I think the current problems are rooted in the fallout from Enron. In the Enron aftermath the senate passed the Sarbannes-Oxley laws to supposedly toughen corporate practices. What wasn't said was the Enron problem was caused by US companies not following GAAP accounting rules (that isn't required by US law). After Enron there was a movement to make US corps follow GAAP, but this was defeated and the much weaker SarOx was passed. If the banks were forced to follow GAAP they wouldn't have been allowed to account for things like they had, and it likely would have lead to a slightly tighter credit market earlier, resulting in a lot of these bad loans never being made. Perhaps the senate should now consider requiring GAAP accounting for US companies like most of the rest of the world does.
Posted by smist08 | September 30, 2008 11:13 AM
I don't see how it's MS's job to instill confidence in the financial system. That's the president's, our elected officials, and the banking sector's. They're just sucking at it. And yes, the credit crunch is going to hurt tech companies. Sure, most do business overseas. But US sales (and especially margins) still play a major factor. Also, the next shoe to drop is European banks. It's already happening.
Posted by paul | September 30, 2008 11:26 AM
Want to see any even scarier number? Since December 24 of last year, Google has dropped from $714 to $403/share - a 44% drop. That's a total market cap drop of $97 BILLION. Yes, with a B. Now you tell me who's really hurting?
By the way, I used the closing price on Monday for these calculations. If the late day price drop on Tuesday were accurate, Google's market cap would be down $122 Billion. If true, that'll put a crimp in Eric Schmidt's airpline buying.
Posted by Mark Ashton | October 1, 2008 6:15 AM
Want to see any even scarier number? Since December 24 of last year, Google has dropped from $714 to $403/share - a 44% drop. That's a total market cap drop of $97 BILLION. Yes, with a B. Now you tell me who's really hurting?
By the way, I used the closing price on Monday for these calculations. If the late day price drop on Tuesday were accurate, Google's market cap would be down $122 Billion. If true, that'll put a crimp in Eric Schmidt's airpline buying.
Posted by Mark Ashton | October 1, 2008 6:28 AM
I wonder if Microsoft is a little upset over this....it might cut "somewhat" into their profit margin.
"Intel wins Venezuela laptop deal
http://www.itexaminer.com/intel-wins-venezuela-laptop-deal.aspx
Oil rich Venezuela will buy a million Classmate notebooks for school children, based on Intel's reference design.
But Microsoft will not get a look in at the dream deal - the machines will use the Linux operating system. Portugal itself has already signed a deal with Intel to create 500,000 "Magellan" machines for school children in its own country."
Posted by Ralph | October 1, 2008 7:52 AM
@Ralph,
Yes, Microsoft is probably upset over this. But this is just one more attack of a steady stream of attacks (er. I mean competition... which is evil if it's not Microsoft doing the competing, isn't it??!!??)
For more "anti-competitive attacks" against the poverty-stricken underdog Monopoly, see:
arstechnica.com/search.ars?search=ooxml+india+brazil
Brazil, India, South Africa and Venezuela all tried to appeal the decision to ram-rod the OOXML specification into an ISO standard, a specification so monstrous and ambiguous and convoluted that even its own creator cannot implement it properly. But Microsoft prevailed in the end, and the appeal was rejected. Frankenstein's monster won't be run out of town after all.
Young Frankenstein's Monster:
blogs.acweekly.com/PeterBoyle2.jpg
Middle-aged Frankensoft's Monster:
images.betanews.com/media/1040.jpg
But not to fear. When legitimate competition is suppressed in one area, it pops up to thrive in another area. Bill Gates is not the first person to beat the odds, and he won't be the last either. Microsoft isn't going away soon, but neither are others with big dreams and the intellect to achieve them.
Posted by Philosopher | October 1, 2008 11:39 AM
Oh no, I just hate to be the one to stick up for Micro$oft. You know the world has gone crazy when I do this. But really, folks, Microsoft is sitting on a huge pile of money, huge. They probably have about enough profits accumulated by now so that they could buy Yahoo outright.
Microsoft does not need to borrow money, again its sitting on a pile of money. Short term, Microsoft is the company most likely not to fail. Long term, it has a lot of problems, but a better Windows Seven could help it, but will most likely still be the same viral magnet as earlier Windows versions. If Seven is the same viral magnet, then this will hasten the flight of users to Nix type operating systems, Linux and Mac OS X.
Posted by chips b malroy | October 1, 2008 2:18 PM
Brazil begins using the Open Document Format
See: news.northxsouth.com/2008/09/28/brazil-begins-using-the-open-document-format/
Sweden: ODF made national standard
See: www.metamorphosis.org.mk/content/view/1247/4/lang,en
A new twist on an old saying: "If you can't join 'em and you can't beat 'em, then just plain ignore 'em and move on without 'em."
(If this is a duplicate, I apologize. Microsoft Watch has always taken my posts with clickable links and held them indefinitely. So this is the second attempt with de-URL'd links. As usual, Firefox and other modern browsers let you drag and links almost as easily as clicking them.)
Posted by Philosopher | October 1, 2008 4:36 PM
Not only do i comment, but i love to suck the Vista big one! I don't love em but do want to join them. If only MS would play with me i would not post all these stupid comments. But then again, why would they. I am not good enough to ever get an actual MSFT job offer. Oh well until then i will continue to open wide and enjoy my vista deep throut, the finest OS in the world.
Posted by Philosopher | October 5, 2008 12:23 AM
I wonder if Microsoft is a little upset over this....it might cut "somewhat" into their profit margin.
"Intel wins Venezuela laptop deal
Posted by erotik videolar | October 7, 2008 11:42 AM