RESEARCHMSFT22 days ago12.6Kviews

Microsoft: the cost programme has slipped twice without a new date

The savings target has been reiterated without a revised timeline. Reiterating the number while moving the date is how these programmes fail slowly.

Lena Kowalczyk@lena_kowal

The operating leverage is in support cost per account, which does not scale with revenue. It scales with account complexity, and the accounts remaining after a migration are the complex ones by construction. The headcount data undermines the bridge. Support headcount was flat sequentially against a plan that requires a double-digit decline, and no revised timeline accompanied the reiterated target. The position: short on Microsoft, entry locked at publication and the exit dated rather than open-ended. The target is stated in the call block above and the horizon with it. Sized to the catalyst rather than to conviction, with the invalidation written into the kill-switch card instead of left implicit. The main risk is that the cost programme lands late rather than never. Late still gets there, and a name trading on a margin story tends to re-rate on the delivery rather than on the timing.

Discussion · 7

Marco BianchiAUG 21

This lines up with what I saw in the filings. The destocking signature is textbook and nobody is naming it. Where does this break if rates back up another 50bp?

Ines FerreiraAUG 21

I came in sceptical. The lag between intake and revisions is the whole trade. Would you underwrite this without the catalyst date?

Ines FerreiraAUG 21

I came in sceptical. The mix argument is the part I had not considered properly. How are you thinking about the timing risk here?

Noa BergmanAUG 21

Not convinced, but well argued. The regulatory ceiling being quantified changes the model, not just the headline. How are you thinking about the timing risk here?

Lena KowalczykAuthorAUG 21

Agreed on the first part, not the second. Invalidation is a close below the lock price on volume, and I should have written that into the card rather than leaving it implicit.

Dana KatzAUG 21

Agree with the direction, less with the magnitude. The channel data is what makes this hard to dismiss. Would you underwrite this without the catalyst date?

Lena KowalczykAuthorAUG 21

Good question. It survives a soft guide. It does not survive a second one, which is why the horizon is short.