Earnings updates

Happy Friday! I hope that this post finds everyone smiling and doing well.

• Microsoft has had its worst 12 months ever as a public company. In the most recent quarter sales were down 17%, while net income was down 29%. Sales and profits were supposedly weak across many of its business lines. However, the company predicted that its markets would grow in 2010.

These results are disappointing, especially if you are the software industry hegemon. However, please note that the company still is a hugely profitable enterprise. I consider Microsoft to not be much of a tech bellwether any longer. Why? Because most of us have had our software needs fulfilled by Windows and Office for the last decade. There isn’t that much incremental pizazz being added by Microsoft to its products, and nor should there be. What Microsoft could stand to work on is making its products more reliable and making them work faster. Those are definitively not high areas for high growth.

I would imagine that Microsoft’s growth will start to closely track the penetration of computers in the Second and Third worlds.

• Ford posted a profit in the second quarter. However, the positive result was due to a one-time gain coming from the restructuring of its debt. Without that gain the Company lost $424 million in the quarter. However, that is still massively better than a year ago when Ford lost $1.03 billion. Also, the Company reported that it saw the car market stabilizing and it gained market share. Both very positive signs.

You may have seen that the DJIA was up 188 points yesterday. My guess is that was largely due to the fact that Ford said it saw its business stabilizing. Remember just several days ago I said that the results of the auto industry would be very important. This is because the 2nd largest purchase for most consumers, after their houses, is a car. For folks to be willing to buy a car they either have to have a stack of money or willingness to take on a new car payment. So the fact that Ford’s business is stabilizing is a great sign of economic health returning.

• American Express said its quarterly profits were down 48%, mostly due to chargeoffs. In other words, its customers either couldn’t, or wouldn’t pay their bills for an extended period of time. The Company’s revenues were down 18% and missed analyst estimates. AMEX also said that customer spending was down 16%.

This last statement is noteworthy because AMEX customers generally are a higher caliber customer than for either Visa or Mastercard. That niche of customers is usually less sensitive to economic downturns than other credit card companies. So for AMEX customers to be spending less means that the recession is making into the midst of the upper middle class and upper classes. Good. Our puffed up credit-based economy needs a reality check at all levels.

In the aggregate, these results would have to be considered in-line (MSFT and AXP) to positive (F). Neither Microsoft or American Express are particularly important indicators, whereas Ford is a lagging indicator of economic health. So when Ford reports good results, its because the economy and employment and confidence have improved enough so that people are willing to buy a car.

Jason