Is Microsoft Gaming the Analysts?

I’m on the record as saying that Microsoft’s Vista is set to disappoint, but there is another view floating around out there. It is best captured in a note this morning by Microsoft axe Rick Sherlund of Goldman Sachs.

In it he argues three things:

  1. Microsoft’s tempering of expectations is largely about Microsoft buying into industry analysts’ lower PC growth (9% y-o-y vs. Sherlund’s 11%), not that it is seeing poor Win Vista takeup;
  2. Spending expectations weren’t up as much as some feared, making that somewhat positive; and
  3. Microsoft talks down analysts at the beginning of almost every year, so this sort of thing is somewhat ritualistic.

I don’t disagree with any of Rick’s points, and it is particularly important to remember that Microsoft has long loved scaring analysts into conservatism early in a year, only to beat the reduced analysts through the year.

This time is different, however. Rather than saying numbers looked high, overall, Ballmer was talking down specific numbers on a specific highly important new product, Vista. While there was almost certainly an element of typical Microsoft-ian analyst gaming, this will still an unusual move, doubly so in the nervous circumstances, with an increasing number of people, pace my recent WSJ column, worried that Vista uptake is poor anyway. For Ballmer to add to those worries with highly specific concerns about that key product was testimony to how there is real problem here.


  1. MSFT has been gaming the analysts for 20 years.
    I remember reading a Gates biography from maybe 1990 (Gates is pictured with a 5 1/4″ floppy on his fingertip) where the author, tagging along inside MSFT, watched the analyst call and noted the analysts were chastised for overly aggressive numbers. After the call Gates and Ballmer did some back-slapping for successfully manipulating their lap-dogs yet again. Ballmer’s words yesterday reminded me exactly of that passage in the book.

  2. the game msft is playing is make your MASSSIVE stock buyback less expensive.

  3. Paul, check the average selling price. Thanks to the new Vista Ultimate SKU, it’s far higher than XP ever was.
    You also have to realize that the upgrade market, though lucrative, is relatively small. Most people get any new version of Windows through a new PC. And last I heard, PC sales were up significantly.
    Vista isn’t everything it should have been, but it’s far from a flop. Considering XP is five (!) years old now, there’s a lot of pent-up demand to satisfy.