Does Microsoft Really Have Reason to Be <I>This</I> Gloomy?

Why one bull thinks the latest bear talk is gibberish.
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From the contrarian department: "Maybe the real story is: why does


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want to knock its stock down?" So started a lengthy email from Michael Murphy of the

California Technology Stock Letter

, in response to my question late Sunday night: "What's your take on Microsoft, now?" The "now" referred to his recommendation to buy Microsoft two weeks ago


the company warned a

Goldman Sachs

analyst of weaker-than-expected third-quarter revenue.

So, what does the outspoken Murphy think now?

"They're lying," he wrote back. "Again."

His reasons:



They have lots of cash, so if they can cut off the flow of cash to everyone else it's easier for them to win?


It lowers the cost of the stock buybacks and reduces the accounting charge for options?



He went on to say he was "shocked" to see

Cramer's comments, in his initial Microsoft conference call column, say, "I have never heard this company talk down earnings before." "It does it EVERY TIME," Murphy says. "It brought the whole sector down in July '99 and July '98 by forecasting sharp slowdowns in its business that never happened." (He says he went to 100% cash in his newsletter on July 14, 1999, because he expected Microsoft to forecast slow growth on the conference call.) "A simple review of its quarterly conference calls for the last four or five years," he continues, "will show its forecasts are almost always lowball and usually are WAY wrong. It will say its revenue growth is about to slow when it is about to accelerate. It will say PC sales look weak right after


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has said they look strong -- and Intel turns out to be right.

"Look at this call. They sent the controller to do most of it. Even though revenue was light, it beat the number by 2 cents. The damage to the stock was already done, why not just meet the number and save the 2 cents for the June quarter? So instead of reporting 41 cents for March and then 43 cents for June, now

it has done 43 cents and set itself up for sequentially flat.

"But no! Now he (and/or the CFO, who joined the call later) goes on to say that estimates for the June Q look a little high and he'd shave a penny or two off them! So now he's created expectations for a sequentially down quarter. Of course, you have to believe that a Microsoft June fourth

fiscal quarter, including a full three months of Windows 2000 shipments, can somehow be weaker than the post-Christmas March quarter with almost no OEM sales for the first six weeks. Notice that it said OEM sales were weak in January and February. Funny how it didn't mention March, when OEM sales took off and have continued strong.

"THEN it had the gall to say although it hasn't finished its FY '01 planning process, the Street consensus of $1.93 looks about a nickel high. I submit that at this point in time there is no statistically significant difference between an estimate of $1.93 and an estimate of $1.88, especially given that it hasn't even finished the planning process. So why did it say that, other than to lowball the Street and knock the stock down?"

Maybe so it can show the government that Microsoft is not really the monopoly it's being made out to be because its stock has nearly been halved from its high? Hey, in this wacko world, stranger things have happened.

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.

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