27
Jan

Lessons learned from Microsoft’s Q2 2015 Earnings Report

2-Color-Design-Hi-Res-100px-widthIn the aftermath of Microsoft’s Q2 FY 2015 earnings conference call and webcast, it is clear a number of well respected Wall Street Analysts–including Rick Sherlund of Nomura Securities–have re-calibrated their future earnings expectations for the company. Sherlund now has a “hold” on the stock. Walter H. Pritchard of Citi changed his rating to sell; readers can read about Pritchard’s opinion in an article published on the StreetInsider.com web site titled UPDATE: Citi Downgrades Microsoft (MSFT) to Sell.

The important points, for me, from the webcast include the following. These points lead me to change my own opinion as to the near term future performance of the business:

  1. Microsoft management (Satya Nadella) presented the Hololens in the context of Windows 10, “Universal Apps” and the consumer market for PC operating systems
  2. Satya Nadella also reported on serious obstacles to further growth for Microsoft for the China and Japan markets
  3. Big improvements in the subscriber numbers for Microsoft’s cloud, IaaS, SaaS, and PaaS businesses (Azure, Office 365) did not translate into big revenue numbers
  4. Management was sanguine about the near term future potential for the business, contributing to the downward revision of earning forecasts
  5. Lots of opinions have been voiced about just what the earnings statistics portend for the company. A writer for the Geekwire website identified weaknesses in the devices market. Pritchard’s rating, which I mentioned above, made references to the cost of new product launches (coming this year) as a big drag on revenue. There are many more, which I do not need to summarize here

These 5 points, when considered alongside Microsoft’s ability to still hit the earnings estimate and actually exceed the expected revenue performance for the quarter, lead me to surmise we are all watching a business do what it needs to do to hit its numbers in whatever manner it can. Blackberry is another example of this type of performance. The method may not please the analysts, but the achievement remains the same.

One comment on the drop in OEM revenue for hardware devices: perhaps a contributor to this drop was management’s decision not to charge for licensing the Windows O/S to hardware OEMs building devices with screens 8 inches in size, and smaller. Unfortunately I did not hear this question asked during the webcast. But if this is the case, the tactic still makes a lot of sense, in my opinion, to protect the low end of the market from further incursion by Google’s Chrome O/S.

On the topic of the target market for the Hololens: I was disappointed to hear Satya Nadella affirm a consumer market target, short term, for the device.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved

26
Jan

Microsoft’s Q2 FY 15 webcast adds some form to the target market for Hololens and word of a formal end to the Windows XP refresh cycle

2-Color-Design-Hi-Res-100px-widthDuring Microsoft’s Q2 FY 15 webcast (http://www NULL.media-server NULL.com/m/p/kfhzc7oc), Satya Nadella alluded to Windows 10 Universal Apps, and their usefulness for average consumers of Microsoft’s recently debuted Hololens “alternative reality/AR” headset computer.

So Microsoft clearly intends to promote the Hololens to the consumer market. But as to whether or not the consumer market will jump at the opportunity, or not, is another question, which was not addressed during the webcast. It is more likely the early adopters for the device will be organization like the Jet Propulsion Laboratory (JPL). JPL was mentioned during the January 20th event. As well, a post on the Hololens was published on the official JPL blog.

Another business with an entry in the headset computer business, Oculus also made news the same day Microsoft held its webcast. In an article titled Oculus CEO on its new VR filmmaking venture Story Studio and Microsoft’s HoloLens (http://blogs NULL.ft NULL.com/tech-blog/2015/01/oculus-ceo-on-its-new-vr-filmmaking-venture-story-studio-and-microsofts-hololens/), Tim Bradshaw summarizes a comment made by Brendan Iribe, the CEO of Oculus about Microsoft’s Hololens, likely target markets and the pace of introducing the technology: “AR [alternative reality] may be further away than Microsoft made it seem last week[. He] suggested the software giant should be “careful” about setting unrealistic expectations.” This opinion seems sensible to me, and, perhaps, one at least the Marketing Communications team at Microsoft might want to adopt.

The rationale behind my recommendation is an article by David Carr, of the New York Times, which appeared on the same day. Carr’s article brings up the whole personal information notion, complete with some thoughts on the level of behavioral re-engineering average consumers will have to go through to adjust to regular use of the Hololens. Of course this type of conjecture hovered around Google Glass for most of its product life. But, nevertheless, stimulating writers like David Carr to voice these opinions so early in the cycle of introducing a product like the Hololens may have been a mistake.

On the question of why the quarter failed to hit all of the analyst estimate targets, it may help readers to note the emphasis Amy Hood, CFO placed on the end of the Windows XP refresh cycle as a reason for these misses. A lot of the commentary already published on the quarterly results have posited notions of serious declines in sales of Windows, Microsoft’s enterprise products, etc. But little mention has been made of the end of the refresh cycle, which may actually make more sense.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved

23
Jan

SQL remains a useful foundation for building tools to analyze data

2-Color-Design-Hi-Res-100px-widthA lot of editorial content about data, and tools built for data analysis, includes a Pavlov-like association between “big data” and “modern” computing. Relational database approaches to addressing data in a form built to accommodate analysis with Structured Query Language (SQL) tools are treated as a dated approach, somehow behind the times.

But much of this content fails to inform the people reading it about just how these “modern” computing systems actually work. For better or worse, Relational databases, which provide a structure (perhaps backbone would be a better word) for information, are, at some point in the process of analyzing electronic information (data), indispensable.

As a rule of thumb, the best examples of editorial content written on topics relevant to this subject, will incorporate some respect for SQL. David Chappell of Chappell & Associates has written a white paper for Microsoft, titled Introducing DocumentDB A NoSQL Database for Microsoft Azure (http://azure NULL.microsoft NULL.com/en-us/documentation/articles/documentdb-whitepaper-chappell/), which, follows this route. Chappell writes: “To support applications with lots of users and lots of data, DocumentDB is designed to scale: a single database can be spread across many different machines . . . .DocumentDB also provides a query language based on SQL, along with the ability to run JavaScript code directly in the database as stored procedures and triggers with atomic transactions.”

From Chappell’s description it should be clear DocumentDB has been built to replicate some of the core planks of Relational Database Management Systems (RDBMS) best practices. These certainly include SQL tools along with stored procedures, and triggers. Enterprise consumers of RDBMS and/or NoSQL collections of data will approve of the end of Chappell’s sentence: “atomic transactions”. This phrase provides these readers with an important assurance: DocumentDB has been built with ACID “Atomicity, Consistency, Isolation and Durability” transaction process in mind. ACID data communications is the floor supporting today’s commercial quality electronic transactions. Without an ACID compliant structure on both sides of a commerce transaction, businesses are not likely to exchange information. The negative ramifications of such a condition are great, so “modern” best practices have been built with an assumption of ACID compliance as a given.

Unfortunately non relational database systems are challenged to demonstrate ACID compliance. This fact is not lost on Chappell. The white paper he has written for Microsoft presents a balance between big data, NoSQL and SQL and RDBMS concepts in a coherent presentation. In my opinion other technical writers would benefit from his approach. I suspect Chappell’s success at his effort is a direct result of his technical understanding of how these systems actually work.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved

22
Jan

Machine learning and Windows 10 and Windows Phone 8.1

2-Color-Design-Hi-Res-100px-widthMicrosoft’s Windows 10: The Next Chapter (http://news NULL.microsoft NULL.com/windows10story/) event, which was held on Wednesday, January 21, 2015, included a number of new product and features announcements. A lot of editorial copy has been produced on the Holographic computer, the “Hololens”. But other announcements, about machine learning capabilities, while, perhaps not as dramatic, also deserve some comments.

Windows 10 Leverages Machine Learning

During the 2 plus hour webcast, Joe Belfiore demonstrates the new role Microsoft’s Personal Assistant, aka “Cortana”, will play in Windows 10. He makes the point of mentioning Cortana’s capacity to learn, over time.

This machine learning capability is also demonstrated much later in the presentation, within the introduction of the Hololens.

Belfiore’s claims are overstated, at least when they are judged against my use of Cortana on Windows Phones. We own two of these, both are Windows 8.1 Lumia 925 smartphones. Cortana has operated as a feature on these phones for at least the last 90 days, and perhaps even longer. The biggest missing piece for us has been the lack of any improvement in Cortana’s understanding of either of our two users. One of our users has a pronounced accent, which has proven to be the basis of erroneous responses from Cortana, which she has gotten to simple questions.

Our other user, me, recently asked Cortana what it knows about him. Cortana’s reply included mention of a “Notebook”. The “Notebook” is presented in the “Windows 10: Next Chapter” event as a valuable new feature. In the webcast, one of the presenters (probably either Terry Myerson or Joe Belfiore) makes mention of the “Notebook” as an important control people will be able to use to determine just what personal information is available for processing and to limit the cognizance of the system of personal information.

Cortana’s reply to a simple question about what this personal assistant application “knows” about a specific person: “Well, I have my Notebook, so I know what you know you’ve let me know. Y’know?” seems to be more of a disclaimer than anything else. We took a look at the “Notebook”. We framed specific questions about information included in it, but could not get an answer from the system on any questions about any of the entries in the “Notebook”. Recommendation: turn down the hype on machine learning as this component of the system does not seem to have developed much at all since we last took a look at it.

In fairness, we need to also note we have an Android 4.4 KitKat smartphone manufactured by LG and an Apple iPad Air 2. Both of these devices also include personal assistants, “Siri” and “OK Google”, which are capable of understanding verbal commands and formulating audible responses. Neither of these devices are actually any more useful than Microsoft’s Cortana when the requirement amounts to an extended audio discussion with one’s computer device.

Machine learning in all of these applications has a long way to go before it is tangibly useful for personal computing.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved

21
Jan

Microsoft debuts many new products while analysts hypothesize about impact on its revenue model

2-Color-Design-Hi-Res-100px-widthOn Wednesday, January 21, 2015, Microsoft published a webcast on its Windows blog. The reason for the webcast was the debut of a number of new products, each of which is scheduled for release later this year. Readers interested in the presentation can view the entire webcast, titled Windows 10: the Next Chapter (http://news NULL.microsoft NULL.com/windows10story/) via the link just provided.

But despite the freshness of the products presented by Terry Myerson, Joe Bellefiore, and Alex Kipman, not to mention the potential for business expansion (or shall I say evolution?) represented by the feature sets of each of these products, some representatives from the analyst community, who attended the event, in person, appeared to fixate on a pair of negative possibilities:

  1. Windows 10 as a free product (for anyone already owning devices with an authorized licensed copy of either Windows 8.1, or Windows 7, or even a Windows Phone with Windows Phone 8.1) threatening what Shira Ovide and Jeff Elder presented (with reference to Rick Sherlund of Nomura Securities) as “about 19% of Microsoft’s revenue in the year ended June 30″
  2. and an announcement of the company doubling down on its commitment to establish a substantial presence in markets for mobile hardware devices despite a diminished presence, which has shrunk, over the last few years, into what looks to be little more than 3%, respectively, of global consumption of smartphone and tablet devices (I gleaned this data from Ovide and Elder’s article in the Online Wall Street Journal, titled Microsoft Shows Off Windows 10 Software (http://www NULL.wsj NULL.com/articles/microsoft-unveils-more-of-windows-10-1421861492?mod=WSJ_hp_RightTopStories))

I am not disputing the relevance of the above points, but I think the potential negative impact of them has been overstated. My position is predicated on two points:

  1. The first of these is a set of APIs, which Alex Kipman presented. Developers can use these APIs to leverage the artificial intelligence/neural networks/cognition features built into Windows 10 to enable mass market consumption of services likewise only accessible via bigger machines
  2. The second is the Windows 10 Holographic system, including the computer and the Holo Studio development environment. Readers should not overlook the inclusion of JPL (Jet Propulsion Laboratory) in the presentation as a present consumer of the computer. With a very prominent consumer already in place, is it hard to extrapolate other organizations implementing this technology? Perhaps profit-making businesses in, for example, the aircraft manufacturing space?

I cannot provide more detail here about the potential of the APIs, beyond merely noting the extensive market interest in robotics, AI, and machine learning. The revenue potential represented by these two points may cover any revenue short fall from Microsoft’s announced decision to give away the Windows 10 OS for the first year after it is RTM sooner than analysts appear to be thinking.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved

20
Jan

Positioning Windows 8 versus Windows 10

2-Color-Design-Hi-Res-100px-widthOn January 20, 2015, the GeekWire website published an article written by Todd Bishop and Blair Hanley Frank, which discusses Microsoft’s Windows 10 operating system and a public event (the actual debut of the consumer version of this O/S), which is scheduled to be held on January 21, 2015. The title of the article is Does the world still need Windows? What’s at stake for Microsoft in the Windows 10 consumer preview (http://www NULL.geekwire NULL.com/2015/world-still-need-windows-whats-stake-microsoft-windows-10-consumer-preview/). Bishop and Frank summarize in this article some statistics coming out of NetApplications, which depict an enterprise computing world largely dominated by Microsoft’s Windows 7 operating system (56% market share vs 14% market share for a combination of Windows 8 and Windows 8.1 desktops).

The statistics are included to buttress a portrayal of some of the challenges in front of this new operating system, as Microsoft prepares for its event. The article argues Microsoft faces an imperative, which it must successfully address, via the January 21st event, to ” . . . assure [the public] that Windows 10 won’t cause them to punch their PC. Windows 8’s dual interface, straddling the line between desktop and tablet features, has caused confusion and frustration for many longtime Windows users.” A similar call for urgency can be found in a number of other articles published on the same topic.

Is it possible Microsoft’s public relations team has encouraged the news community to adopt this approach to the event, which I would summarize as “Windows 10 is a radically different operating system from Windows 8.1″? I have no information to indicate whether this is the case, or not, but the similarity in tone between these articles is, perhaps, attributable to a set of “talking points” someone sent out. At least it is fair to say there has been no press from Redmond countering the tone or substance of these articles.

I have been running Windows 10 Preview on a laptop since the start of the preview program (I believe the program kicked off in October, 2014). The laptop, an HP Envy, shipped with Windows 8.0, which I upgraded to Windows 8.1. In my opinion the differences between Windows 10 and Windows 8.1, at least as of Build 9879, are not radical. The real takeaway, for me, from the Windows 10 Preview experience, is a refinement of Windows 8.1, where the user interface is now a consistent experience of apps and other desktop components. Is it necessary to combine both experiences in one operating system? I would answer it is, given the reality of an enterprise computing world where mobile hardware devices are the norm.

Microsoft is not the only vendor of these systems seeking to present consumers with a “unified” computing experience. Both Apple and Google (Android and Chrome) have come around to the same approach, which should be something of a vindication for the original notion powering Windows 8.1. I am looking forward to tomorrow’s event. It might even be fun.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved

16
Jan

Is the response to Intel’s Q4 2014 Results overdone?

2-Color-Design-Hi-Res-100px-widthOn Thursday, January 15, 2015 Intel reported the results of its Q4 2014 business activity (http://www NULL.intc NULL.com/eventdetail NULL.cfm?EventID=152949). In the aftermath of the report, which included conservative guidance for the coming business quarter below analyst estimates, analysts expressed skepticism.

I should also note the conference included details about the extent of the costs Intel continues to incur to enter the market for CPUs for mobile devices. Finally, rumors circulated about the possibility of Apple changing CPU architecture for its Mac PCs and laptops.

But is the analyst negativity overdone? In my opinion it is. Market entry is never an easy process, especially when the business attempting to enter a market is the largest manufacturer of PC computer CPUs, and the target market is already mature and dominated by other vendors with well received products (the ARM chip architecture and its licensees, including Qualcomm). So there is a cost associated with this entry, which, admittedly, Intel has been paying out for several quarters.

However, the Q4 2014 results included a beat on the profit number and an increase in gross margin. These numbers, of course, include the losses just mentioned. If Intel is not only able to carry the cost of mobile market entry, but to, at the same time, increase its overall profitability and still hit estimated sales targets, then why all the gloom? Perhaps the answer is Q4 2014 is behind us and we are already nearly a third of the way through the next coming quarter.

I am not interested in debating this argument. Nor am I interested in analyzing the Apple rumors. What I am interested in doing is merely pointing to a very positive reception for one of the new Android tablets on the market powered by Intel’s Atom processor and the new Broadwell chip set. The tablet is manufactured by Dell, the Venue 8 7000. No less a fierce Intel naysayer than Joanna Stern of the Wall Street Journal wrote a very positive review of the device, in sharp contrast to reviews she published earlier about Microsoft’s Surface tablets.

The value of positive consumer press about these devices should not be underestimated. Stern’s review may mark a change in sentiment for precisely the right group of critics to influence affluent consumers to think hard about just which tablet they ought to buy next.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved

15
Jan

Just how accurate are advertising predictions produced by machine learning systems?

2-Color-Design-Hi-Res-100px-widthThanks to Mikio Braun, who on Thursday, January 2015 published an article on the InfoQ website. Braun’s article includes mention of a Google acknowledgement about the role played by machine learning (also known, at least in part, as data processing by algorithms) as a predictive tool in its ad placement technology for its click ad business. Readers interested in this topic should read Braun’s article, which is titled Google on the Technical Debt of Machine Learning (http://www NULL.infoq NULL.com/news/2015/01/google-technical-debt-ml).

I have written about the inaccuracy of click advertising in earlier posts to this blog. To quickly summarize my opinion on this topic, I found the systemic tendency towards poor ad placement to be especially difficult to overcome when the items to be promoted provide subjective, intangible benefit. So gaining a perspective on just how much of the ad placement technology behind Google Adwords and, in all likelihood, its direct competitors (principally Microsoft’s Bing advertising system), as Braun points out in this short article is very helpful.

What is also very helpful in Braun’s article is the manner in which the Google researchers (Braun’s article is really a news report on a presentation at a recent conference event held in Montreal, the Software Engineering for Machine Learning workshop, part of the annual Neural Information Processing Systems, NIPS, conference held in Montreal) shed light on the precariousness of proper performance for machine learning systems, in this (online advertising) context, given the effect they have on other related computer processes. These researchers make clear how the basic assumptions powering Neural Networks can actually adversely affect these siblings, and, thereby, produce erroneous results along with very little value to people depending on them. Readers should note this conclusion is my own, and not a conclusion expressed anywhere in Braun’s article.

From Braun’s article, and the technical précis of a research paper on the algorithmic process behind machine learning, which was also published by Google researchers, online advertisers should be careful to set realistic expectations about paid placements. Perhaps it will make sense to horizontally structure these campaigns, with a panoramic reach wherever possible, if they are to produce any meaningful results.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved

14
Jan

IBM introduces a new mainframe computer targeted to some markets better served by clusters of smaller servers

2-Color-Design-Hi-Res-100px-widthIBM debuted its z Systems line of mainframe computers in January, 2015. The product line is targeted to a hot segment of enterprise computing consumers, organizations with a burning need to manage mobile devices, users availing of cloud computing offers and, above all, secure online data processing.

Readers can learn more about this product line on its website, IBM z Systems (http://www-03 NULL.ibm NULL.com/systems/z/announcement NULL.html?lnk=ushpls1). A quick glance at the marketing communications content reveals some popular and absolutely current computing themes:

  • mobile computing
  • enterprise social computing
  • real-time analytics and “in-transaction” analytics
  • secure, cloud computing

Video product presentations are available on the product website, along with a traditional datasheet in PDF format. A quick glance at the datasheet exposes a cluster approach to delivering the computing power of a typical high performance computing (HPC) system. No problem so far, but how does the introduction of a hardware computing platform with these capabilities align alongside IBM’s announced effort to become a major player in the public and private cloud market for IaaS, PaaS and SaaS? Does it make sense for developers building solutions for Hadoop, Map Reduce, and other cluster architectures optimized for lots of comparatively much smaller CPUs to focus on porting these applications over to IBM’s platform?

Notable on the datasheet is IBM’s suggestion about development platforms. The recommendation is for Java. But a lot of the most promising sector of app development, in, admittedly, very early 2015, is built on scripting languages, with JavaScript getting the most attention. There is also some substantial mention of traditional mainframe computing languages (COBOL) on the datasheet.

So one needs to question just how this product line adds value to IBM’s effort to catch up with its peers in the cloud computing business with systems like these. Certainly a review of the website for these new products is recommended given the themes articulated by the press releases about the z System computers. The most prominent of these are all allusions to mainframe computing, which, in 2014, seems to be something of anathema. Big iron is, unfortunately, no longer the recommended way for most enterprise businesses to proceed, at least not for the ones already committed to Azure, AWS and Google Compute Engine.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved

13
Jan

Rounding off some of Google’s edges makes a pretty picture, but little more

2-Color-Design-Hi-Res-100px-widthKatie Benner, a writer published on the Bloomberg View web site, presented a hypothesis about Google on January 13, 2015. She questions whether some of Google’s recent features, what I would call its edges, are familiar because they are characteristic of another very large tech company – Microsoft. But has she actually rounded these edges to render an otherwise sloppy picture into something somewhat more appealing?

The title of Benner’s article is Google is the New Microsoft. Uh-Oh (http://www NULL.bloombergview NULL.com/articles/2015-01-12/google-is-the-new-microsoft-and-that-should-freak-it-out).

The sticking points, for me, in her characterization of Google as a maturing tech business “print[ing] money” are some otherwise simple mistakes Google has made, which are NOT the kind of mistakes worth anyone’s sympathy. Unfortunately Benner doesn’t talk to these points.

What she does opine about is her portrait of “innovation” (an otherwise meaningless abstraction if there ever was one) as an elusive quality of product development existing somewhere beyond the grasp of “hugely profitable compan[ies]”, like Microsoft.

What is missing from the piece is Benner’s definition of “innovation”. Is it safe to say she does not consider Google Glass to be “innovation?” What about the driverless car? Or, finally, what about inexpensive DNA profiling? As anyone following Google is aware, each of the above products have emerged from the “Googleplex” (the last is offered by a company headed up by Sergey Brin’s wife, 23andme).

So, to follow the point further, if the above products are not examples of innovation, would it be safe to assume Benner is talking to a definition of the term perhaps closer to what Microsoft’s CEO, Satya Nadella, presented last year, when he positioned his business as an enterprise focused on delivering solutions to enhance personal productivity? In an earlier post to this blog I wrote on this point, with reference to an article Irving Wladawsky-Berger wrote last year for the Wall Street Journal’s CIO Blog on the concept (readers need only review The Science of Innovation (http://blog NULL.irvingwb NULL.com/blog/2014/12/the-mit-innovation-initiative NULL.html) to get a glimpse of how Wladawsky-Berger understands “innovation”).

To wrap up this exposition, then why doesn’t Benner include Microsoft along with Apple in her ranks of large businesses capable of “innovating core products”. Unfortunately I can not answer these points as, in my opinion, Benner’s article rounds off these hard edges. I would have preferred to see them nailed together into a tight frame for Google’s mistakes, which I regret, are perhaps a lot more pedestrian and far removed from any notion of “innovation”.

The biggest of these, and the most recent as far as my gaining cognizance of its existence, is Google’s architecture for its Android IP business. Deciding not to update some comparatively recent versions of this O/S is a wrong decision not likely to win Google many friends from the OEM community, nor from end consumers. Certainly the decision to abandon these versions was correctable, and a rather simple thing to fix without a lot of buzz about “innovation”.

Ira Michael Blonder

© IMB Enterprises, Inc. & Ira Michael Blonder, 2015 All Rights Reserved