Falling Microsoft Income Endangers Yahoo Bid

Dionysius, God of Wine and Leaf, points out a new wrinkle to Microsoft's pursuit of Yahoo. The most recent quarterly results, which saw Microsoft's earnings drop by 6% from the previous year (revenue from Windows alone was down 24%), have caused the stock to dip. This has reduced the value of the cash-and-stock offer from its original $44B to something nearer $40B. Yahoo, of course, has maintained all along that the original offer was lowball. A business professor is quoted: "Whatever leverage [Microsoft] built up in the last few days could be slipping away."

Clearly caused by H-1b limits

[Baldrson (78598)]

It's clear that if Bill Gates could just get the H-1b caps lifted, the best and brightest [cis.org] from around the world could come to the US and be paid $100k straight out of college [programmersguild.org] to save Microsoft.

Anyone who was around during the dot-com era remembers how it was H-1b limits that caused the crash of that wonderful era. Those who do not learn from history are doomed to repeat it.

wrong wrong wrong*

[thermian (1267986)]

It was the absurd level of investment which saw things like startups being valued higher than HP, Xerox, and if I remember rightly, the Ford Motor company, that caused that.

Venture capitalists poured billions into the industry without considering that the market had yet to produce the great new age of commerce that was promised.

Startups without a coherent product were valued as multiple million dollar companies, and attracted investment like dead dogs attract flies.

And all this at a time when I believe broadband wasn't even widely deployed.

It was a bust waiting to happen. It's just a shame that so many viable companies were taken down in the crash.

Re:wrong wrong wrong*

[lightversusdark (922292)]

Whoosh!

And don't try the old asterisk in the subject line trick - we can see you're not a subscriber!

Re:

[Gideon Fubar (833343)]

*woosh*

That was the stealthy sound of sandpaper-dry sarcasm whistling coarsely overhead.

You are right, though.. There was very little sanity going on there, and we all suffered because of it.

Re:Clearly caused by H-1b limits

[pubjames (468013)]

Yes, but $100k is now worth relatively little in proper money.

I was going to make a joke about this but actually its not funny.

Re:

[Jesus_666 (702802)]

Except if you happen to live in Europe, in which case it is funny. Well, unless you realize that a falling Dollar might negatively impact the country that creates 90% of our culture and goods, which is sad on many levels.

I really wouldn't worry..

[encoderer (1060616)]

Currencies are SUPPOSED to fluctuate. It's healthy. Like a forest fire. Recessions, too, for that matter.

The weak companies can burn to the ground to un-clutter their marketspace and allow healthy, new companies to grow in their wake.

The strong dollar led to rampant outsourcing in the late 90's/early 00's.

The US was an expensive place to do business.

As the dollar weakens, the US becomes more and more attractive for foreign investment. European companies (like Volkswagen, for example) see a supremely talente

Re:

[pubjames (468013)]

It's not healthy. Healthy is a strong, stable economy with a strong, stable currency. The dollar is dropping like a stone. This has lots of negative consequences, which far out-way the benefits.

The fact that European companies find it cheaper to employ people in the USA than other countries is not a good thing. The ability to outsource to other countries where labour is cheaper is a sign of economic strength, not weakness.

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[encoderer (1060616)]

Economies and currencies are not static. Never have been, never will, and never SHOULD be.

Sure, as a currency reaches the extremes (both high and low) of its value, some people are hurt by that economically speaking.

But that's the point of a personal and social safety net.

I mean, the notion that a currency should be static just makes no sense whatsoever. A currency is essentially a "score" of the performance of a given economy. When an economy is strong, when growth prospects are strong, the currency is str

Re:

[CastrTroy (595695)]

$100,000 US is still quite a bit of money. Expecially if you are talking about yearly gross income. I don't think you realize just how little money some people can live off, even in the United States. $100,000 should be more than enough to support a family. If it's not, you aren't spending your money correctly. If you aren't supporting a family, then you should be even better off with all that money.

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[anandsr (148302)]

Actually it will be very easy to reduce the demand of H1-B visas. Just stop them from being slave laborers to the companies importing them. This can be done by just allowing them to switch jobs, and allowing them to apply for Green Cards without sponsorship.

Currently the companies hold the H1-B visa holders by a tight leash because they can't switch jobs once Green card is applied. Also they can't switch jobs in the early years.

If both these restrictions are removed, companies will not be able to afford to

Re:

[JohnBailey (1092697)]

It's clear that if Bill Gates could just get the H-1b caps lifted, the best and brightest from around the world could come to the US and be paid $100k straight out of college to save Microsoft.

Anyone who was around during the dot-com era remembers how it was H-1b limits that caused the crash of that wonderful era. Those who do not learn from history are doomed to repeat it.

Ahh.. so not people over investing in any idea that came along, no matter how outlandish it was, just because some of these ideas might pay off in a big way?

Re:

[jkrise (535370)]

It is absurd to suggest that (a lack of) engineers caused Microsoft's downfall. The more engineers and managers it threw at Vista; the worse the end product. Marketing and (poor) management will be the downfall of Microsoft; not engineers or programmers; H1B or otherwise.

Re:

[by Anonymous Coward]

What a complete load of bull plop!

The reason they want the cap lifted is becuase the people being brought in from abroad are cheap pure and simple!

BY the way I'm live in the UK and so therefore have no agenda.

This rubbish about it stopping PHD's etc is crap. By the way if they are being bought in to fill postitons in the US, why do they need to create start ups??

Its a ruse,the high tech companies do not want to pay a decent living wage to americans, when they can hire and fire foreginers, who will also be l

ummmm

[oliverthered (187439)]

When I was a lad companies used to do something called training to get their employees up to scratch, Why can't Microsoft/ Yahoo/ IBM do this?

Re:ummmm

[timmarhy (659436)]

They do, grants and on the job training.

this might shock you so hold on to your strawberry daiquiri, it takes years to get enough experience to even start training at the level MS needs to hire people to stay competitive.

Re:

[rtb61 (674572)]

M$'s failing is not a lack of coders or Ph.Ds it is management incompetence. Very poor business decisions and, a total disconnect from their customers. Hiring more people just means blowing more money on failed products, or just being able to produce even more bad code.

M$ failings have nothing to do with a lack of technical staff but everything to do with the Vista (P)OS, the user interface failing on Office 2007, the Zune edsel music device, pathetic xbox360 failure rates and, the failed re-branding of M

Re:

[Simon Brooke (45012)]

Why do you have to drag this bullshit sarcasm into this discussion? [scythe] So, stop that stupid sarcasm and get some of the facts, OK?

Because, outside the US of A, there are still some people who understand humour. Inside the US of A, of course, you can't even spell it.

Re:

[Just because I'm an (847583)]

If we're going to use such broad brushstrokes then you have to admit it's pretty funny to have someone who is (or at least appears to be) from the USA label other nationalities arrogant.

Downward spiral?

[Tom (822)]

Not only the Yahoo! bid. Wasn't MS built up kinda like a pyramid scheme, with their reliance on stock options as payment for top professionals and other things like that? Someone calculated a couple years back by how much about the MS stock can slip before it sets a downward spiral into motion that will wipe the company out. Explained to me at that time while they are so hell-bent at domination and expansion, no matter the cost. Given their makeup, if MS falls, it will fall hard and far.

Re:Downward spiral?

[Jesrad (716567)]

It is the falling revenue that hubris is set in motion. It is by the gook of management that self-destruction acquires speed, the product line acquires bloatware, the bloatware becomes a warning. IT is by falling revenue alone that hubris is set in motion.

The crash is coming

[pubjames (468013)]

When Microsoft falls, it's going to fall big-time, and the size of the crash will take everyone by surprise. Microsoft is still a company with basically two extremely profitable cash cows (OS and Office) which are both under threat. Both of these huge cash flows could disappear fairly quickly. I predict their profits will stay stable or show a slight decline for two or three years, and then suddenly they'll be a huge drop in profits - perhaps a 40% drop, and then everything will go to crap for them over the

Re:Downward spiral?

[Bert64 (520050)]

Software can compete on microsoft's platform, if microsoft is not trying to compete with that software. Just you try producing a word processor for windows, you will waste thousands of man hours reverse engineering proprietary microsoft formats, instead of improving your product. And even if you do spend the time and effort to produce a product that is both superior and compatible, you will face a serious uphill battle trying to get anyone to use it.

If we had a truly open single platform, progress and innovation would have been a lot faster.
It was always inevitable that a more open platform would take over from the myriad of incompatible systems that were available years ago, unfortunately it was only the hardware that was open, or at least competitive, while software became more locked in than ever.

Microsoft have stifled the evolution of the open IBM compatible platform, not helped it. They stalled the transition to 32bit, and are doing the same with the transition to 64. They delayed other valuable technologies like USB and SATA by being way behind everyone else in supporting them. And they are keeping people stuck on the crufty legacy bios, because of their unwillingness to support EFI, or anything else that would be newer and better. How many other good technologies have been delayed or killed completely, simply because microsoft couldnt be bothered to support them, or supported them in such a half assed way as to make people falsely perceive them as useless.

They (along with other closed source vendors) are also stopping people moving to other superior architectures (some of which are more open than x86, but less widely supported because they wont run windows).

Re:

[miffo.swe (547642)]

"Might I remind you that a lot of the reason computers have been able to advance as quickly as they have is because we have a single majority platform."

Thats the worst load of crap ever uttered in this industry. Most things on the hardware side has been hold back because of Microsofts unwillingness to support new technologies.

If you take your time and compare what was on the market when Microsoft started dominating the x86 platform you will find that first Dos then Windows was long behind the competition. T

Re:

[SL Baur (19540)]

Had IBM held onto x86 Microsoft as we know it would still be making stoplight-software.

You have more than two errors there. IBM chose the 8088 as their first PC chip. It was Intel's own documentation for that chip that suggested it was best used for controlling traffic lights (the docs I had recommended 8086 for regular microcomputer usage). And if Microsoft had been doing traffic light software, there would have a boom in the ambulance-chasing lawyer industry like you wouldn't believe. Oh wait ...

Re:

[miffo.swe (547642)]

http://en.wikipedia.org/wiki/Traf-O-Data [wikipedia.org]

Maybe we should thank heavens that Microsoft went towards the PC world?

Re:

[cyphercell (843398)]

So, microsoft is essentially a financial institution? Then what is being discussed would have to be considered a run on the bank, er, stock. You think microsoft's brand value is going to be worth more than the lint in my belly button if everyone decides to sell? Hell, with that type of scenario the thirty bln looks like just enough to maintain plausible deniability. I mean the big difference here is that enron had *something* tangible (energy), microsoft has all those vista licenses everyone is clamoring af

Its a beautiful day after all!

[Dana W (1281070)]

Lets all say that together, shall we? "Falling Microsoft Income" Beautiful........... Do I get two more wishes?

Re:

[cheater512 (783349)]

What more could you wish for? :P

The Offer is NOT LOWBALL

[SerpentMage (13390)]

If you think that Yahoo which is trading over 40 to 50 PE as lowball well then YAHOO is crazy.

Look at the earnings growth of Yahoo for the past five years. IT IS pitiful. Yahoo is being too arrogant for its own good.

Personally, I think Microsoft should just walk away. Watch that Yahoo stock drop faster than gravity.

Offer is attractive to shareholders

[EmbeddedJanitor (597831)]

Recent economic worries tend to make people risk adverse and tends to pop the bubble of any high PE stock. Being able to trade away high PE stock for a good price gives YHOO shareholders a nice sleep and that is all that is keeping the YHOO stock from crashing.

Re:The Offer is NOT LOWBALL

[Solandri (704621)]

If you think that Yahoo which is trading over 40 to 50 PE as lowball well then YAHOO is crazy.

Look at the earnings growth of Yahoo for the past five years. IT IS pitiful. Yahoo is being too arrogant for its own good.

Over 5 years, Yahoo stock has outperformed Microsoft stock [yahoo.com]. If a Yahoo stockholder were basing his decision solely on the 5-year history, he would have to be crazy to want to trade his Yahoo shares for Microsoft shares.

Yahoo has only run into problems during the last 2 years, which is kinda short to declare the company dead. And their current P/E (with a price based on Microsoft's offer) is 35, which seems about average for most tech stocks. The day prior to Microsoft's bid, YHOO had dropped so low I was considering picking some up. I'm still kicking myself for putting off the research for a day so I could watch a movie.

Re:

[Chrisje (471362)]

Gravity doesn't drop. At least not in that sense of the word. :-D

Re:

[Yvanhoe (564877)]

There is more to it than just money. The people who founded Yahoo 13 years ago are still in for the ride. If they sell it to Microsoft, they know the adventure will end there. After all, they already are rich enough, I don't think they want more money, I think they want independence and fun.

And battling Microsoft is a fun that many people here can probably understand!

Re:

[SerpentMage (13390)]

Oh yes I am paid by MS (sarcasm)... Care to show proof?

No, my side hobby is investing in the market. Yes I am long MSFT, but I am also long AAPL. I would be long GOOG, but I find GOOG a bit too opaque for my tastes. Though they are a good company.

My point is that I am looking at this deal from a financial perspective and Yahoo is an idiot...

Just the excuse they need

[rastoboy29 (807168)]

This is it, Steve, take the bone that's been thrown to you, and use it as an excuse to call the whole thing off.

I know...go buy Comcast!  That would be cool.  I think I would actually like you better as my ISP.  And that's saying something.

Windows revenue dropped 24% ??!?!!!

[jkrise (535370)]

Colour me surprised, I thought with customers buying Vista AND XP; Windows revenue should've gone up actually. Even in Vista, the numerous versions out there seem specifically designed to confuse, and increase revenues.

24% decline in revenues could mean that people are either:

1. Pirating Windows XP very easily or
2. Corporate customers buying PCs with no OS, and installing Corporate licensed XP or
3. People switching over to Macs and Linux.

I think it could be a bit of all the above. In 3 years time, if Microsoft does not release a really good successor to Vista, it could be Curtains for Windows! (TM). Will it happen?

Re:Windows revenue dropped 24% ??!?!!!

[Zigurd (3528)]

This is the first indication of Microsoft actually feeling a bit of pain due to Vista.

Microsoft could afford to misspend the money it took to develop Vista. But Microsoft cannot afford to allow Windows share in the installed base to erode 10 points from the current level. Apple has already taken advantage of that opening, and Linux, mainly Ubuntu, is growing even faster, though from a such a tiny base that the statistics are iffy.

How bad would a 10% decline be? It would leave Microsoft with 80% of all personal computers that access Web sites. That doesn't seem irreversible. But it is worse than it looks for two reasons:

1. That 10% contains a large number of opinion leaders.

2. The momentum would be hard to reverse.

If a 10% decline happens in the next 18 months, before Microsoft has a response, then Microsoft will be in serious trouble.

3 years is far too long for Microsoft not to have a response. Well within 3 years we will know if we have a long-term competitive environment for personal computer OSs, possibly with new entrants other than Mac OS X and Linux.

Re:

[jkrise (535370)]

It can't be Windows Server2008, because Server Revenues are shown separately, and they were up since 2007.

Advertising in Vista has no relations to revenues, only expenses.

As far as identical OEM pricing is concerned, I think unless Corporate customers buy PCs with NO OS at all; MS would atleast be getting the same revenue as previous years? The PC market is still growing, so a 24% drop in revenues should be really alarming for Microsoft.

Revenue from Windows down?

[MMC Monster (602931)]

Why isn't this a news article by itself?

Why is Windows revenue down? What was the official reason, and official response?

Is this a normal dip that happens this time of year? Are they blaming the recession? Are they expecting an upswing in the next quarter?

Re:

[VertigoAce (257771)]

In November & December 2006, we deferred $1.67 billion in revenue for Windows Vista and Office 2007 into the 3rd quarter. This makes it hard to compare 2nd & 3rd quarters year over year, unless you look at it with the revenue moved back to the 2nd quarter. Once you take this into account, the results for this quarter were roughly what you would expect.

A company name right on the mark:

[thrill12 (711899)]

... I guess "Yahoo" never imagined that their name would once be yelled out so loud, when the hostile bid by MS on their company failed...

Yaaaaaaahoooooooooooooo!

Revised Figures

[Linker3000 (626634)]

...and in late breaking news, Microsoft has reexamined their P/L Excel Spreadsheet and announced that the averaged annual profit level of $771M across their 85 Group Companies may actually be overstated at $100000M and should be nearer $65535M

Re:

[utnapistim (931738)]

I think everybody knows by now that Vista sales are not going as Microsoft initially envisioned, whatever Steve Balmer might be saying.

Re:

[PinkyDead (862370)]

Just a suggestion: http://www.pendrivelinux.com/ [pendrivelinux.com]

Re:

[pandrijeczko (588093)]

Shouldn't that be a 640Kb memory stick? Because you'll never need more than 640Kb.

Besides which, I cannot agree with your statement one bit - Microsoft makes damn good mice and joysticks!

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[Jesus_666 (702802)]

Their wireless routers were crap, though.

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[cp.tar (871488)]

Besides which, I cannot agree with your statement one bit - Microsoft makes damn good mice and joysticks!

Microsoft used to make damn good mice and keyboards. I don't know about joysticks.
However, the new Microsoft mice and keyboards that I've tried out are not that good, really.

Re:

[pimpimpim (811140)]

Have to agree with that. As far as I like yahoo standing up for themselves, yahoo's product is hardly viable either with or without MS. I remember yahoo's horrid news group interface with ad-only pages intermitting every 5 messages or so. The only good thing about yahoo is Flickr and the only reason MS needs yahoo is to make Flickr dependent on Silverlight so that they will get a critical mass for the Silverlight userbase. MS needs to do that fast, if the growth of Silverlight is too slow web developers wil

Re:

[Socguy (933973)]

Good call. Microsoft would have slowly killed Yahoo, not overnight mind you, Yahoo is far too big for that. Most companies try to focus their energy on their 'core competencies'. (Makes sense that you would spend most of your time focusing on what you do best in order to NOT kill your golden goose!) Now what is Microsoft's core competency? Well, they do a ton of things but I guess you would have to look at where they make their money: Windows/Office.

For some reason Microsoft is desperate to compet