Microsoft CFO Not as Giddy as Media

The business media took Microsoft's decent earnings release and extrapolated, declaring them immune to recession.

Immune? That's funny, considering the company's own CFO clearly said the company was vulnerable to recession.

Don't blame the boys and girls of the business media. They had been so dour of late, who wouldn't want them to write something sunnier for a change? Well, savvy investors who care for accuracy, for one.

They Just Don't Get Microsoft!

Here 's The New York Times' celebratory lead:

"Microsoft reported quarterly sales and profit gains that surpassed Wall Street's expectations and delivered an optimistic outlook Thursday, suggesting that a weakening economy would not slow it down."

The Business Press Maven must be a stickler for tense here. Did the results show that a weakening economy has not slowed Microsoft down? Most certainly. But would not? Not exactly.

Though the company did raise numbers going out, look at how Jessica Mintz of The Associated Press, while still remaining appropriately positive, frames Microsoft's warning (not mentioned by The Times and countless others).

"We will be impacted just like everybody else," if the U.S. falls into a recession, Chief Financial Officer Chris Liddell said Thursday. "But overall, we feel very optimistic about our second half."

In terms of criticism, The Times does touch on Microsoft's online business, but it quotes an analyst as saying such concerns are "nitpicking," considering the company's overall strength, which was benefited mightily, it bears mentioning (the Times doesn't) from a Vista timing issue.

Look, by comparison, at how Mintz does not mince words when it comes to rounding up her obligatory analyst: " 'It looks like a very nice report,' said Sarah Friar, an analyst for Goldman Sachs, in an interview."

Then Friar touches on the reason for Liddell's wary remark:

"While economic jitters haven't hit tech companies yet, Friar warned that information technology executives are shaving their 2008 budgets and may buy less from Microsoft. The company makes more profit from its business licenses than on sales to consumers, she noted."

How did others do? The Wall Street Journal managed to run a quote of Liddell giving the same hedged warning in different words:

"For all of our businesses, clearly, there is a scenario where a slower economy could seep through to slower sales," Mr. Liddell said. "But our overall growth, we believe, is very healthy."

http://online.wsj.com/article/SB120120200992914097.html?mod=hps_us_whats_news In a blog post, however, The Journal's cousin Barron's wrote simply: "The company also said that it is not seeing any spillover into its business from the current economic weakness."

This is technically true, but savvy investors need to look forward, not back. And there is at least a hint of concern on Microsoft's part about the future.

That modest bit of concern was lost on The Financial Times, which only focused on the raised numbers going forward. Read their lead, scan the article, and you never would have guessed a couple of recession-effect quotes from Microsoft were floating around other publications:

"Microsoft on Thursday shrugged off concerns about a slowdown in the tech industry with solid quarterly earnings and an optimistic outlook for the first half of this year, sparking a strong relief rally in its shares."

And our own Street.com showcased a Liddell quote that was uncharacteristically smug: "You have to look really hard to find any weakness in our results."

Again: True enough, but that same Liddell, despite the raised numbers, was a bit less smug when looking forward.

In short, when the CFO warns about less business spending in a recession, who are you going to believe, the business media or your lying ears?

And the winner is? Uh, Societe Generale. That's right, even if it's oh-so wrong. In its January issue, Risk magazine named Societe Generale its equity derivatives house of the year. All hail the champs. And try not to choke to death on your giggles. Here's the explanation, as such:

"With one of the largest exotics books on the Street, one would imagine that Société Générale Corporate and Investment Banking (SG CIB) would be licking its wounds and coping with hundreds of millions of euros in losses. There was some impact, but the losses have been relatively minor and entirely manageable, says Christophe Mianne, SG CIB's head of market activities, covering equity, derivatives, fixed income, currency and commodities in Paris.

"We managed the existing book very well because we decided some time before the crisis to be long volatility and be less sensitive to correlation, so the losses were minimal. We suffered on our statistical arbitrage trading activity, but that was just for one month, and minimal compared to some hedge funds or other banks. Overall, our trading activities will be approximately flat compared to last year, which is a good performance," remarks Mianne."