One of the biggest complaints of the public equity markets is the incredibly short-term focus of participants. Management teams for publicly traded entities face severe consequences from a market short on patience.
Decisions tend to be focused on delivering short-term results. The "beat the number" game has become standard operating procedure. Such is the cost of accessing capital while providing shareholders liquidity.
But is worth it? I'm not so sure.
Investors want the company to make as much money as possible in the short term. As a result, if a company is not profitable in a given quarter, there is extreme pressure to cut costs and to do so immediately -- no matter the longer-term expense of such action.
In many cases cutting costs are exactly the right tonic to rejuvenate profits, but in some instances, those short-term cuts can do more damage than good.
This past week, Microsoft (NASDAQ: MSFT) dropped a big bomb on the market by releasing its quarterly earnings earlier than expected. Lost in the headline of the lower revenue and earnings number was the announcement that the company would be cutting 5,000 jobs from its rolls.
For the first time in its history, MSFT is laying off employees. My question is, why bother?
Seriously, while it is a negative in the short term for MSFT to have missed its earnings and revenue numbers, the loss of jobs will have a big psychological impact on the company. The move sends a horrible signal inside and outside of the company.
The biggest risk is that some of the best talent at MSFT may get nervous about sticking around. Will they be next to lose their jobs? That's what I would be thinking.
Microsoft is still a cash cow, and they are using that cash to do things like buy back stock. They are making money hand over fist, even if the numbers are not what the market expected.
The move looks like an act of desperation.
The company's stated reason for cutting is to preserve cash in an economic environment where there appears to be no light at the end of the tunnel. I don't buy it.
The move was made to appease the market, but the tradeoff will be a lack of credibility with current and future employees. In one move they lost a key competitive advantage.
Now they are just like everyone else. No wonder the stock was down on the news.
Louis Navellier's PortfolioGrader Pro, which offers free ratings for nearly 5,000 Wall Street stocks, rates MSFT a D or Sell.
Jamie Dlugosch is a contributor to OptionsZone.com.
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Reader Comments (Page 1 of 1)
1-23-2009 @ 7:41PM
Roger Waugh said...
Microsoft's problem is that their cusotmers have lost trust a key factor in any business and now work with the criminal under world with fake web sites and going as far as changing history by adding their networks of tags.For people that do not understand tags it is a way of keeping contact with others that think out of the box,meaning they consider their customers as routine doing the same thing in their daily activties supporting their familys by going to work buying your food and all the other nessary acts in our standards of living,buying your home and buying auto's,even purchacing your clothes .this is were they come into action by setting up fake web sites to sell you these items,then they work on your children by promoting super stars with underground music that they do not even sing to sell fake products even journalist are involved because they work for company's that do not pay them enough to live a normal life so they write lies to help their sales pure greed that is destorying our nation and our people and leading our children lifes of sin .They call this education and help colleges that are involved also to support more students to learn skills to jobs at this rate will not be available in our future.Basic fact big bussinesses do not have common morals no ethics,no cares ,no love and all that is important to them is their bottom line at your expence.....
1-23-2009 @ 7:48PM
Roger Waugh said...
Yes my grammer is poor and mistakes are many but beyond my lack of proper skills I still believe you will understand what I'm talking about .I'm a regular Joe but with a difference I care and they do not...
1-25-2009 @ 3:18PM
tom said...
Don't think it matter.I care only for the price.I learned microsoft story with the help of histocky.com and now know how to gain from it's movements...