Microsoft Is Telegraphing Bad News

Microsoft warned of poor fourth-quarter PC sales despite everyone already expecting this, which could be a sign of real trouble.

Is something rotten in the state of Washington? In Redmond, specifically?

I'm making this inquiry because yesterday, at an analyst meeting at CES in Las Vegas, Microsoft (MSFT) warned that fourth-quarter PC sales would come in worse than expected due to supply-chain disruptions stemming from the Thailand floods.

The only problem is this. We've known about the Thailand floods' impact on the PC industry for months. Every company in the PC supply chain from Hewlett-Packard (HPQ) to Dell (DELL) to Seagate (STX) has talked about it on their respective earnings calls.

Now let's rewind back to December 12 of last year, when Intel (INTC) cut its fourth-quarter revenue forecast by $1 billion due to the hard-disk drive shortage, which supposedly resulted from the aforementioned floods.

As I explained in the Buzz & Banter (click here for a free trial!) back then, Intel guided down by a pretty huge amount 80% into the quarter (mid-December) because of a problem that was obvious in October.

And Microsoft is talking down PC sales a whole month after that!

What's the point? Anyone paying the least bit of attention to the industry would have fairly low expectations for fourth-quarter PC sales without any such warning.

So what's going on here?

No doubt, Thailand had its impact on PC production levels, but it's also a convenient distraction from deeper, secular issues, namely Microsoft's lack of meaningful exposure to the mobile-device boom being dominated by the likes of Apple (AAPL), Google (GOOG), Samsung, and Amazon.com (AMZN). (See: Motorola Results Point to Apple, Samsung Dominance)

Now I realize that I'm once again putting on my Captain Obvious hat, but it looks like Microsoft is trying to soften the blow of a really, really lousy quarter for the Windows business by blaming Thailand. As in, HDD shortage or not, Microsoft was going to have one stinky quarter.

At the same time, my interest was piqued by a story from our buddies over at Bloomberg, indicating that Microsoft is on track for a major marketing shakeup, which could include the elimination of hundreds of jobs.

According to Bloomberg's Dina Bass:

"The changes would eliminate overlap in job responsibilities and are designed to help the company better respond to threats from Apple Inc., Google Inc. and Amazon.com Inc., which are increasingly targeting Microsoft's corporate-computing customers. Chief Executive Officer Steve Ballmer doesn't think the company is getting enough return on the billions it spends annually on marketing, the people said."

All told, this batch of news indicates that Microsoft is in a serious state of flux, perhaps more so than we previously thought.

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