Sideways was an award-winning movie. It is not an award-winning phrase when it comes to the March results for Microsoft Business Solutions.
The word "sideways" was used by the only financial analyst to ask a question about MBS during Microsoft's conference call about its third quarter results. "We seem to be going sideways," the analyst from Sanford Bernstein said in beginning his question.
The fact that only one analyst asked a question about MBS, which had a 3 percent increase in sales, but widened its loss by four percent, says something about what Wall Street thinks about the Microsoft endeavor in mid-market accounting software. They were a lot more concerned with Xbox.
The company says that it put more money into marketing and into incremental hiring for its channel organization during the March quarter. Whatever the reasons, here we are four years after Microsoft bought Great Plains, with Solomon embedded inside, and after it snagged the Navision/Axapta combo--still losing money.
The competition is not losing money. Sage continues to make money while improving the profitability of the companies that it has acquired. For example, it boosted Accpac's operating margin to 24 percent, up from 14 percent a year ago, for example. Epicor, Exact, Intuit, and Blackbaud are making money.
It's easy to argue that Microsoft is trying to buy market share on the way to the $10 billion organization that Microsoft says MBS be. But Sage's significant improvement to the Accpac margins must have some people wondering why MBS can't do the same thing. Did Microsoft really set out to spend $2.5 billion in stock to acquire the software companies and then to close in on $1 billion in losses to buy market share? The division's new CFO said in March that maybe profitability is another year off.
I've worked the numbers with all kinds of assumptions: five or 10 years to pay back just the operating losses, not even considering the stock purchase price. I've toyed with what would happen if MBS achieved a 20 or 25 percent operating margin, at different levels of sales--a performance that seems far away.
But no matter what assumptions I make, even wildly optimistic ones, I come up with one conclusion: Even if MBS turned highly profitable in the June quarter, ROI is a long way away.
