Business software maker MicroStrategy Inc. (MSTR) said Thursday its first-quarter profit declined, as increasing operating expenses overshadowed growth in product license revenue and support. Investors appeared to be surprised by the news, taking the shares down more than 16%.

They shouldn’t have been. I warned three months ago that MicroStrategy looked cheap for a reason:

A look at recent customer wins shows a concentration of retail, financial and healthcare markets. Not exactly the clients one wants during a consumer and financial crunch.

Indeed, it looks as though the toll was already being felt when MicroStrategy reported third-quarter results. Although gross accounts receivable were basically flat during the first nine months of 2007, the allowance for doubtful accounts was increased by nearly 50% to $2.8 million. This suggests that the company may be having trouble collecting from some customers.

Both net income and cash flow from operating activities declined during the first nine months of 2007. Though service and maintenance revenue grew, product licenses declined more than 3%. Since customers must license a product before they can service or maintain it, the falling product licenses suggest that profits may continue to fall, especially if customers indeed prefer the convenience of one-stop shopping offered by IBM, Oracle and SAP.

In fact, profits would have been lower still had MicroStrategy expensed all of its software development costs, as it did in early 2006. In the first nine months of 2007 $2.7 million of such costs were capitalized, and the capitalized software balance increased by $1 million. Had the development costs been expensed as incurred, cash from operations would have been $2.7 million (4%) lower and net income would have been $641,000 ($0.05 per share) lower.

The allowance for doubtful accounts continued to rise, despite continued declines in the gross receivables. And the capitalized software costs are coming back to bite, as the expenses are now being recognized and no additional costs were capitalized.

To be fair, though, the latest miss came following a run-up in the stock price. Today’s severe decline in the shares merely leaves me looking like a bit less of an idiot than I did yesterday. Since I wrote the article, MSTR shares are up 4.9%, compared to a 1.4% rise in the S&P 500.

Disclosure: At time of publication, William Trent holds no financial position in the companies mentioned in this article.

My latest column is up at RealMoney. In it, I explain why I think the negative reaction to BMC Software’s (BMC) purchase of BladeLogic (BLOG) was overdone. In summary:

BladeLogic is growing nearly 40% annually, compared to just 5% expected growth in BMC next year. By my calculations, it increases BMC’s revenue growth rate by 180 basis points, which should have a significant impact on valuation models.

What’s more, I think there were signs that BMC’s growth was due to accelerate on its own. Deferred revenues had declined slightly over the past nine months, which can act as a drag on revenue growth in future periods. But license sales are up 13.5% so far this year, compared to total growth of less than 9%. Today’s license sales should increase future maintenance and service revenues.

Although the BladeLogic deal is expected to reduce BMC’s 2009 per share earnings by 10 or 11 cents, BMC’s estimates for 2009 had already risen by a similar amount. Effectively, the dilution from BladeLogic offsets BMC’s organic improvements for a year.

Meanwhile, BMC has generated more than $540 million in free cash flow over the last 12 months. Some of that is unsustainable, as it comes from collecting on financed receivables. However, I think the sustainable free cash flow is more than $400 million. That still amounts to a 6.5% free cash flow yield at a time when five-year Treasuries return a paltry 2.2%.

Alternatively, I think the stock can generate double-digit returns over the next few years by virtue of its growth, despite a potential reduction in valuation multiples.

Disclosure: William Trent has no financial position in the companies mentioned.

Last month I wrote about IBM (IBM - Annual Report) and said:

IBM is now trading at a P/E of 12.7x 2008 earnings, compared to a five-year average P/E of nearly 18x. It offers a free cash flow yield of nearly 7% at a time when 5-year Treasuries are yielding 2.8%.Expected long-term earnings growth of 11% annually marks a modest slowdown from the 13% generated over the last five years. It is also well below the sustainable growth rate of 29%, which is further evidence of excess cash flow that can be used for more share repurchases.

Valuation aside, things seem a little dicey here. The new guidance seemed sufficient to spark a better rally than we got. If IBM can’t move when estimates are jacked up by $0.25, what will make it move?

I can’t claim to be expert in technical analysis, but a look at the charts, especially the moving averages, suggests that $109 may be a make-or-break price point for many investors. In today’s market environment, I think I’d rather keep my powder dry than chase a possibly elusive extra four percentage points of upside.

But I’ll be watching. I also might be tempted to find some approach using options. For example, the March $110 call options would provide upside in the event of a strong rally, and could largely be paid for by writing $100 puts. Since I think the valuation is reasonable, being forced to buy at $5 lower wouldn’t hurt my feelings too badly, and I’d still get the exposure to the additional upside if the stock does rally.

$109 did prove to be a make-or-break area, and the effectively zero-cost call option I proposed would be worth almost $6 as of Tuesday’s close. Maybe I should take up technical analysis.

Or maybe I shouldn’t. Given the way some of my fundamental picks (where I do consider myself an expert) are working lately I may be better off sticking with the naive approach.

The following article is a reprint of my February 6, 2008 RealMoney column

Hewitt (HEW) is a leading global provider of human resource benefits, outsourcing and consulting services. On Tuesday the company reported $0.59 in earnings per share, beating analyst estimates by a full $0.20 per share. Given that it currently sports a healthy 9.1% free cash flow yield, I thought it was worth a further look.

Unfortunately, the full year guidance given was that Hewitt is “maintaining our fiscal 2008 guidance despite absorbing what we expect will be about six cents per share in dilution from the divestiture of Cyborg over the balance of the year.” After a $0.20 beat in the first quarter, ideally estimates would be raised by $0.14 (or more) despite absorbing a $0.06 per share dilution.

Hewitt’s surprise was largely driven by the fact that its Human Resources Business Process Outsourcing (HR BPO) business, which accounts for 20% of total revenue, lost less money in the company’s fiscal first quarter 2008 than it did in the prior year. Still, there are contracts that the company is trying to restructure to achieve profitability that are in “sensitive” stages.

Given how much most companies hate the human resources function, one would think that those willing to take on others’ headaches would be able to earn high profits. Unfortunately, there are a surprisingly large number of companies willing to take on those headaches. In the latest 10K, management says that “The principal competitors in our HR BPO segment are technology consultants and integrators such as Accenture (ACN), Affiliated Computer Services (ACS - Annual Report, EDS/ExcellerateHRO (EDS) and IBM (IBM - Annual Report) and; companies that have extended their services into human resources outsourcing such as Automatic Data Processing (ADP) and Convergys (CVG).

On the conference call, management indicated that the outsourcing business was counter-cyclical, with customers outsourcing more in downturns in order to reduce costs. Yet they seemed to contradict this statement by saying that the current market environment was causing their new contract signing pace to be behind schedule. Hewitt’s Zacks rank declined last week from 1 (best) to 2. Although the current rank still puts Hewitt in the top 20% of companies measured for earnings momentum, the cautious guidance and talk of a light pipeline are likely to result in some estimate reductions for the remainder of the year.

Despite the lower sales pipeline and ongoing restructuring of unprofitable contracts, Hewitt paid higher performance-based compensation in the fourth quarter. This resulted in first quarter free cash flow being $4 million lower than last year. The company also expects to spend more on capital expenditures this year, which will dampen free cash flow generation.

Furthermore, while earnings are improving the quality of those earnings is not. To gauge earnings quality, I measured the accrual ratio (change in net operating assets as a percentage of net operating assets) over the past several years. The accrual ratio gives an indication of the extent that earnings are driven by cash flows versus accounting choices. The closer the ratio is to zero, the better. Hewitt’s has been declining.

Source: Zacks Research Wizard, compiled by William A. Trent

So, after looking under the hood, I see a company with falling earnings momentum, falling free cash flow yield and falling earnings quality. The only thing rising in recent quarters has been the share price. As a value oriented investor, I’d rather it was the other way around.

Disclosures: None

Zacks Investment Research has provided Stock Market Beat with a complimentary trial subscription to Research Wizard.

This article is a reprint of my January 31, 2008 RealMoney column.

When International Business Machines (IBM - Annual Report) reported earnings a couple of weeks ago, the consensus among Wall Street’s finest was that the company would earn $7.98 per share in 2008. The company smashed that number, providing guidance of $8.20 to $8.30 per share. Even Papa Bear called it impressive.

The market reacted by enthusiastically doing, well, pretty much nothing. The shares were up a smidge the next day, then dropped back and recovered in line with all the market weirdness. The conference call featured one question after another about the macroeconomic environment.

It’s true that there were some signs that the results were built on a wobbly foundation. Fourth quarter revenues were up 10%, but 6% of that growth was due to currency fluctuations that may or may not reverse next year. If I want to bet on a rising Euro I think I’ll play the currency rather than IBM.

Worse, though short-term global services contracts were up 8%, total contract signings declined 13% compared to the prior year quarter. That means a big drop (25%) in long-term signings, which likely explains why analyst estimates for 2009 only rose by about a nickel after the 2008 guidance hike.

On the bright side, though, the short-term contracts likely mean that the $8.25 guidance midpoint for this year is pretty well in the bag. Since this year is likely the point of maximum economic uncertainty, that is a good thing.

The company also generates plenty of free cash flow, and mostly uses it the way I would want them to. In 2007 IBM generated $16.1 billion in cash from operations, $5.5 billion of which stayed on the balance sheet as increased cash holdings. The company used:

• $18.8 billion to buy back shares,
• $5.0 billion for capital expenditures,
• $2.1 billion for dividends, and
• $1.0 billion for acquisitions.

Debt increased by $12.5 billion, to just over $35 billion. Most of the debt is related to its financing operations. With $16 billion in cash on hand and free cash flow generation of more than $11 billion, I don’t see the debt as a concern at all.

IBM is now trading at a P/E of 12.7x 2008 earnings, compared to a five-year average P/E of nearly 18x. It offers a free cash flow yield of nearly 7% at a time when 5-year Treasuries are yielding 2.8%.

Expected long-term earnings growth of 11% annually marks a modest slowdown from the 13% generated over the last five years. It is also well below the sustainable growth rate of 29%, which is further evidence of excess cash flow that can be used for more share repurchases.

Valuation aside, things seem a little dicey here. The new guidance seemed sufficient to spark a better rally than we got. If IBM can’t move when estimates are jacked up by $0.25, what will make it move?

I can’t claim to be expert in technical analysis, but a look at the charts, especially the moving averages, suggests that $109 may be a make-or-break price point for many investors. In today’s market environment, I think I’d rather keep my powder dry than chase a possibly elusive extra four percentage points of upside.

But I’ll be watching. I also might be tempted to find some approach using options. For example, the March $110 call options would provide upside in the event of a strong rally, and could largely be paid for by writing $100 puts. Since I think the valuation is reasonable, being forced to buy at $5 lower wouldn’t hurt my feelings too badly, and I’d still get the exposure to the additional upside if the stock does rally.

This article was published on RealMoney on February 1, just 4 hours before MicroStrategy surprised investors with a blown earnings report. Although I typically take a long-term view, you can never count on having the luxury to do so.

Looking at my screens this week, I noticed that MicroStrategy’s (MSTR) Zacks rank had jumped from 2 to 1, a rank that puts the company’s earnings revision momentum among the top 5% of companies ranked. Looking further, I found that estimates for both 2007 (yet to be reported) and 2008 had been hiked by more than $0.25 per share in the last 90 days.

Meanwhile, the stock has declined from $110 to $72 during the same period. A declining stock amid rising earnings estimates was something I had to investigate further. Upon doing so, however, my conclusion is that there may still be further downside in the shares.

One thing that has buoyed software stocks in recent years has been the consolidation wave. According to company filings, MicroStrategy “competitors that are primarily focused on business intelligence products include, among others, Actuate (ACTU), Business Objects (BOBJ), Cognos (COGN), Information Builders and the SAS Institute.”

Cognos is being acquired by International Business Machines (IBM - Annual Report) and Business Objects by SAP AG (SAP - Annual Report). Another competitor, Hyperion, was already bought by Oracle. It is increasingly looking like MicroStrategy is among the wallflowers at this dance.

And without an acquisition, things aren’t looking so hot fundamentally. A look at recent customer wins shows a concentration of retail, financial and healthcare markets. Not exactly the clients one wants during a consumer and financial crunch.

Indeed, it looks as though the toll was already being felt when MicroStrategy reported third-quarter results. Although gross accounts receivable were basically flat during the first nine months of 2007, the allowance for doubtful accounts was increased by nearly 50% to $2.8 million. This suggests that the company may be having trouble collecting from some customers.

Both net income and cash flow from operating activities declined during the first nine months of 2007. Though service and maintenance revenue grew, product licenses declined more than 3%. Since customers must license a product before they can service or maintain it, the falling product licenses suggest that profits may continue to fall, especially if customers indeed prefer the convenience of one-stop shopping offered by IBM, Oracle and SAP.

In fact, profits would have been lower still had MicroStrategy expensed all of its software development costs, as it did in early 2006. In the first nine months of 2007 $2.7 million of such costs were capitalized, and the capitalized software balance increased by $1 million. Had the development costs been expensed as incurred, cash from operations would have been $2.7 million (4%) lower and net income would have been $641,000 ($0.05 per share) lower.

The $84 million in free cash flow MicroStrategy generated last year amounts to a 7.5% free cash flow yield. This is more than the 100% premium to Treasuries that I would like to earn from my risky investments. However, the ongoing declines in cash flow mean that I want to be compensated for falling cash flow as well. Each percentage point of expected decline should equate to another percentage point of cash flow yield.

Using the 3% decline in license revenue as a starting point, and the 2.9% Treasury yield as a base, I would want to earn a free cash flow yield of at least 8.8% (2.9 + 2.9 + 3) on MicroStrategy. To get to that yield, the shares would need to fall to $57.

In the meantime, it just looks too risky for me.

Zacks Investment Research has provided Stock Market Beat with a complimentary trial subscription to Research Wizard.

This article was originally published at RealMoney on November 6, 2007.

Parametric Technology (PMTC) develops software used for Product Lifecycle Management (PLM) and Enterprise Content Management (ECM). At a P/E of approximately 15x and a 5.3% free cash flow yield, Parametric appears cheap relative to other technical software developers. However, its earnings quality has historically been low and it faces more severe competition than some of its peers. With earnings quality improving and the valuation favorable, PMTC certainly bears watching. But for now I think Dassault Systemes (DASTY) and Ansys (ANSS) have sufficiently better prospects to justify their higher valuations.

Compared to companies like Ansys, which develops highly technical products and has relatively few competitors, Parametric has significant competition in each of its business segments.

PLM competitors include Dassault Systemes SA, Siemens (SI) subsidiary UGS, Autodesk (ADSK) and Agile Software (AGIL). They also compete with larger enterprise-solution companies such as SAP (SAP - Annual Report) that have entered the PLM market and offer solutions integrated with their other enterprise software applications.

ECM competitors include EMC (EMC - Annual Report) Documentum, IBM’s (IBM - Annual Report) FileNet, OpenText, Adobe (ADBE) Framemaker, and the Microsoft (MSFT - Annual Report) Office suite.

Parametric suffered mightily during the tech downturn, but since 2004 the company has been engineering a turnaround based on improved profitability and a return to growth. Current consensus growth estimates for the next five years are just 7%, or half the rate expected for the industry. The lower growth estimates are part of the reason for the cheaper valuation. However, they also make for a lower bar to clear, and the recent reversals of its deferred tax valuation allowance are a signal that the company is now “more likely than not” to earn sufficient income in future years to utilize tax losses from prior periods.

There are a few other issues that cause me to think Parametric’s low valuation is justified. For example, 58% of revenues are derived in North America, which faces an uncertain near-term economic outlook.

Another issue is earnings quality. Gross margins have been declining due to a higher percentage of revenue being derived from consulting and training rather than license and maintenance revenue. A bad debt charge-off in 2006 and increased customer financing activity are other signals that earnings quality may be low.

To get a feel for overall earnings quality, I calculated the accrual ratio, or the change in net operating assets divided by average net operating assets. This ratio describes the percentage of earnings contributed by discretionary accounting items rather than actual cash flows. An ideal accrual ratio would fluctuate around zero. Parametric’s has been all over the map, though it has been improving for several quarters.

Sources: Zacks Research Wizard, William A. Trent

If Parametric continues to improve its earnings quality, or if it gives back some of the stock gains it enjoyed post-earnings (or preferably both!) it could become an attractive buy candidate.  In the meantime, interested investors may find an option play worthwhile.

The January 17.50 puts were trading recently at $0.50/$0.75. If you could write the option for $0.60 it would offer a 3.1% 2.5-month return on the money at risk, which annualizes to nearly 15%. You’d be forced to pay $17.50 for the shares if they drop between now and then, but the option premium would give you an effective price of just $16.90. At that price, the 6.0% free cash flow yield would probably be enticing enough to justify a buy anyway.

Disclosure: Short naked put options on Ansys (ANSS)

William Trent currently has a short position in put options related to Office Depot (ODP).

This article was originally published at RealMoney on September 26, 2007.

My article last week about mining the PPI report for stock ideas was so well received I thought I’d share another of my favorite taxpayer-provided idea generators, the durable goods report. Published by the U.S. Census Bureau, the report has a similar breakdown by industry of durable goods orders, shipments, inventories and backlog.  I came away with 28 potential ideas for further research.

In line with much of the recent economic data, the headline durable goods number was weaker than expected. To quote from the report, “New orders for manufactured durable goods in August decreased $11.3 billion or 4.9 percent to $219.5 billion, the U.S. Census Bureau announced today…. Shipments of manufactured durable goods in August, down two of the last three months, decreased $3.4 billion or 1.6 percent to $216.7 billion.”

But in this case, I think focusing on the forest means you could miss out on some of the more attractive trees. I gathered the data from the Census Bureau and created charts showing the year/year change in durable goods statistics for a variety of industries hoping to find some areas worth further consideration. Keep in mind, this is an initial screen for idea generation, not a full-fledged analysis of any of the names. You wouldn’t want to buy the stocks listed here without further research. That caveat aside, let’s look at some of the better performing industries.

First up is technology – computers and electronic products. Although 3.3% order growth year/year and essentially flat shipments may not be the type of growth investors typically look for from tech, it is a clear improvement from recent months. Inventories are starting to be drawn down and backlog remains strong.

But there are areas of strength and weakness within tech. Specifically, computers (and related products) themselves are starting to look strong, with backlog headed through the roof and inventories in check.

The fairly obvious stock ideas from this industry include Apple (AAPL), IBM (IBM - Annual Report) and Hewlett Packard (HPQ - Annual Report). If things keep getting better (and the company figures out how to file its required regulatory reports) Dell (DELL) might even look interesting again. Stretching a bit further, Sun Microsystems (a href="http://stockmarketbeat.com/blog1/category/tech/sunw/">SUNW - Annual Report) and Lexmark (LXK) come to mind. And don’t forget the storage plays, which also showed up on the PPI hotlist. The names I mentioned then were Brocade (BRCD), EMC (EMC - Annual Report), Iomega (IOM), Hutchinson (HTCH), Quantum (QTM), SanDisk (SNDK - Annual Report), Seagate (STX - Annual Report) and Western Digital (WDC).

Communications equipment is also showing some signs of strength. Though the latest month was down, the trend seems to be up.

I have actually analyzed Motorola (MOT - Annual Report), so that would be a play to include here. Cisco (CSCO), Research in Motion (RIMM), 3Com (COMS), Nokia (NOK) and Corning (GLW - Annual Report) also come to mind.

And finally, turning away from technology, I hope you didn’t think the aircraft boom was over. If anything, it looks to be picking up steam.

Ways to play this include Boeing (BA - Annual Report), Embraer (ERJ), General Dynamics (GD - Annual Report), United Industrial (UIC) and Cessna parent Textron (TXT). Parts suppliers include Rockwell Collins (COL), Curtiss Wright (CW - Annual Report), and LMI Aerospace (LMIA).

So there you have it: 28 potential stock ideas from what looked at first glance to be a negative report on durable goods.

Disclosure: Long RIMM put options at time of publication.

Cognizant’s recent slowdown in net hiring has taken the wind out of its sails, and we have said several times that the biggest threat to the offshore IT providers is sustaining the employee growth that will be needed to sustain revenue growth - especially given the industry’s high employee turnover rates.

With several of the earnings reports from leading IT outsourcers and offshorers now in, we thought it an opportune time to peruse the conference call transcripts for clues.

First off, it is clear that demand remains strong.

George Price - Stifel Nicolaus

Where are we in terms of headcount in India? And then targets going forward by the end of the fiscal year?

Bill Green

I think I mentioned that we were in the mid-50s, in terms of total numbers. I think we were at 35,000 or targeting 35,000 by the end of the fiscal year. You know, the growth just continues, George, to expand there now with the management consulting expansion. We’re just going to see more substantive growth there. So we’re still on-target to hit the end of the fiscal year number that we’ve been throwing around.

(Excerpt from full ACN conference call transcript)

However, the demand is also putting pressure on wages.

We are increasing the offshore wages by somewhere between 13% to 15% and onsite wages for people outside India by 5% to 6%.

Overall, the impact on the margins because of the wage increases is something around 300 basis points, and we are assuming the rupee/dollar rate at 43.10. The average for fiscal ‘07 was 45. So, that could have an impact of something around 150 to 160 basis points on the margin.

(Excerpt from full INFY conference call transcript)

Margins are under pressure due to a rising rupee as well.

Now, this quarter our operating margin dropped by 100 basis points. This is primarily on account of rupee appreciation. But as we look forward, we have given guidance where we expect the profitability to be maintained at the same percentage level next year.

(Excerpt from full INFY conference call transcript)

Cognizant even claims that the slower hiring pace is just to protect margins:

And in the end, why are we slowing down hiring, because we want to stay within our target margin range, which we feel we can do without disrupting the business at all, because we are running such a low utilization today.

(Excerpt from full CTSH conference call transcript)

This explanation, however, doesn’t hold water with us. For one thing, low utilization has been the norm as the companies bring hires through the training program and prepare for expected turnover. Whether the margin impact is due to rising wages, currency issues or anything else is not the point as they are all symptoms of competition for workers. Instead, the point is whether the employees will add productivity or will allow revenue to grow only in line with employee count. We don’t see why it would be any more important to protect margin now than it would have been a year ago. To some extent it appears Infosys agrees.

S. D. Shibulal

Well, a higher utilization actually creates stress within the system because it’s like having a manufacturing plant and you cannot have people come just in time all the time. So, it made sense for us to have some amount of strategic bench, especially when you are bidding for large deals. And when large deals come into picture, there is one-time investment of people acquired. And today, on an average, every quarter we close some large deals, some multimillion dollar multiyear deal gets closed in every quarter.

So, it was important for us to build a strategic bench. At the same time, at this point in time, we have the fleet transferring too in the bench without impacting the business — including the utilization, without impacting the business.

(Excerpt from full INFY conference call transcript)

One key to continuing growth as the headcount increases is to reduce turnover. Some progress has been made here.

During the quarter, our annualized employee attrition declined to 15% from 17% in Q4. While we are pleased with our sequential progress in this area, attrition remains above historical levels. We continue to monitor employee attrition carefully and take necessary short and long-term steps to manage it.

(Excerpt from full CTSH conference call transcript)

Given Cognizant’s 43,000 employee count, a 2% reduction in annual turnover offers the same benefit as hiring 860 employees in a year. They also seem to be focusing on hiring the real revenue generators:

The increase in cost of revenues was due to additional technical staff for on-site and offshore required to support our revenue growth. We increased our technical staff by over 4,300 during the quarter and ended the quarter with approximately 40,800 technical staffs. This is a net increased of almost 15,750 technical staff from March 31, 2006.

(Excerpt from full CTSH conference call transcript)

Because of the ability to focus the hiring, because of increased productivity as employees gain experience and because of the low current utilization there is certainly some room for the companies to grow faster than they add employees. However, this ability is somewhat temporary. Long term, more sales will require more bodies. The question is whether those bodies can be found and retained.

BEA Systems (BEAS) is down following an earnings preannouncement:

BEA Systems, Inc., a world leader in enterprise and communications infrastructure software, today announced certain preliminary financial results for its fiscal first quarter ended April 30, 2007. BEA expects to report first quarter total revenues between $342 million and $347 million, with license revenue expected to be in the range of $111 million to $116 million.

Analysts had been expecting the company to generate $389 million in revenues.

“This quarter we saw a difficult selling environment, especially in the Americas, and several large deals slipped out of the quarter. During the quarter, BEA made several changes in our sales organization, especially in aligning our sales force around new products. We believe these changes are positive for BEA in the long run, but implementing these changes caused some disruption in the short run,” said Alfred Chuang, BEA’s founder, chairman and chief executive. “Several geographies outside the US performed well. AquaLogic had another strong quarter, especially the AquaLogic BPM product, and we are very well positioned to continue our leadership position in the SOA market.”

We have noted that the economic slowdown has been particularly pronounced with regard to business spending on equipment and software. Meanwhile, rivals such as Oracle (ORCL - Annual Report), SAP (SAP - Annual Report) and IBM (IBM - Annual Report) have all been fairly upbeat.
With a chart like that one, it was pretty obvious that somebody was going to miss on revenues.