Microsoft Recession Proof? Could Be!


If you believe the media -- and you should, every word ;) -- you'd think this nation was spiraling toward recession. But it's not necessarily so.

The recession boogeyman comes up a lot lately. When Intel reported less than stellar earnings, "recession" was the easy explanation. When Apple's iPod numbers came up short during the holiday shopping quarter, and its guidance was softer than expected, "recession" became the likely culprit. Same with eBay.

It's here. Or it's on the way. Or we're worried it's on the way. Or worried that it's already here but we're too scared to admit it. At best, we run the risk of creating a self-fulfilling prophecy, but at worst, investors run the risk of squandering so many opportunities because the message from these companies is being drowned out by all the noise.

Take Microsoft as an example. Not the best example -- only the most recent.

The company unleashes a blockbuster report and those of us in the business media, scouring the numbers for hints of weakness, end up lauding the company for a job seemingly well done. But on the conference call, once again, "recession" comes up. Is the company seeing one? Are we in one? Is Microsoft "immune" from one should one happen?

Well, if you believe the media, and Microsoft was still able to post this kind of quarter and this kind of guidance, it stands to reason that Microsoft has found some magic bullet to ward off the effects of recession; or the worries of one.

But here's the rub: if the company doesn't believe we're in a recession, or that one is headed our way, then it's reasonable to assume it could still be vulnerable to one. If one happens. Is that such a bad thing? Or even surprising?

But I don't necessarily think that's the big takeaway from the conference call, based on my interview with Microsoft's Chief Financial Officer Chris Liddell this morning, where -- gulp! -- recession came up again.

"Obviously we know there's a lot of concern out there," Lidell told me, and "from our point of view we're not blind to that." Again, reasonable.

But he goes a big step further: "Look at the products we're selling, and the progress we're making...PC sales up around 15 percent, sales in the U.S. in total were up around 14 percent in the first half, so in the products we're seeing, we're actually doing well.

"So there may be obviously concerns in some areas of the economy, but for our product range, we're actually very optimistic."

Affected by recession? Maybe. And that's reasonable. But is he seeing weakness? Evidence of a recession? Sure doesn't sound like it. And with 60 percent of revenue now coming from outside the U.S., it's not even clear that a U.S. recession would be as cataclysmic for Microsoft as it once used to be. And remember, Microsoft raised guidance for this quarter and the full year.

I got the same message from Intel's CEO Paul Otellini -- almost 80 percent of his revenue comes from outside the U.S. -- the week before the company posted those "disappointing" earnings.

I don't get it. We all want to be first; we all want to "call" the recession before it happens so we can say we saw it coming. But we run the risk of tuning out the message from these guys: yes, a recession could hurt. Yes, a recession could be bad. It's just that so far, it's not here and business is doing just fine, thank you very much.

Questions? Comments?