Company Press Release - Copyrighted Material

Ravi Suria, Luciano Siracusano, Paul Sagawa and Gail Dudack - A Special Thank You from Parish & Company

Many ask how I feel regarding what is perceived as your firms all liberally using my work without attribution.  My response remains the same, thank you very much.  Especially given that I am a small independent investment manager and don't have the organizational backing you maintain. Receiving threatening messages and phone calls and weathering Microsoft's failed attempts to discredit me was unpleasant.

The archive at www.billparish.com clearly indicates a wide range of quality news sources including Larry Woods' Tech Review, The Independent in the UK, Das Bild in Germany, The Willamette Week and many others that used and cited my work long before you issued your reports.  I do also appreciate the significant web traffic each of your firms has provided me.  Although there is no financial benefit since I do no advertising on my web site it still helps me feel good that someone is interested in these ideas.

Please allow me, however, to clarify my basic premise which seems to have not been fully aired.  Since your firms are using my work, it would seem appropriate to at least state this conclusion, whether you agree or not.

Regarding Amazon.com my basic conclusion, which was thoroughly reviewed by most leading investment firms as early as 1998, is that Amazon.com is subsidizing the Microsoft Corporation by paying Microsoft's federal income tax.  This is of course very difficult for a young company like Amazon.com, although a thoughtful gesture to their neighbor in Redmond, and would clearly lead to a cash shortfall.  It was indeed these subsidies of Microsoft's federal income tax that probably led Amazon.com to issue corporate bonds and further extend its liquidity difficulties.

Amazon.com competes for much of the same talent that Microsoft does and in doing so was forced to issue significant quantities of non-qualified employee stock options, greatly diluting its equity base and impairing its ability to issue a secondary equity offering.  Since employees are taxed when the options are exercised, even if the stock is not sold, Amazon.com issued even more options to account for the tax.  Since Amazon.com has no profits, they are unable to utilize these stock option gains as a tax deduction yet Microsoft is able to fully utilize its stock options wage deductions, thereby creating a form of cash machine in the form of non-payment of federal income tax that indeed largely explains the high cash balance at Microsoft.  Amazon's stock option wage deductions are essentially worthless since they have no profit.  Meanwhile, they have diluted their equity base greatly upon employees paying tax on stock option gains, often at 40 percent rates.  These taxes represent a permanent extraction of the combined equity base at Amazon.  An extraction that is leading to a liquidity difficulty.

Regarding the telecomm sector and the concerns reflected in the November 2 Lehman Brothers report cited in the NY Times, these same concerns were very clearly outlined in a series of reports on my website and also reported in secondary news media outlets long before the Lehman report.  What somehow also got lost in the Lehman report is the conclusion that Cisco engaged in a merger scheme in order to compete for capital with a financial pyramid at Microsoft.  Sadly, this strategy has not succeeded as Cisco Systems stock is now down approximately 80 percent from its peak.

More important regarding the telecomm sector is a related conclusion that this merger scheme at Cisco was impairing competition in the telecomm sector and resulting in artificially high prices that in turn required carriers to take on excessive debt in order to build out their new data networks.  The Lehman report did a nice job of summarizing my report's observations but left out the "how" and "why."  As with Amazon.com, the source cause of this most unusual situation is a financial pyramid at Microsoft.  A pyramid which has artificially raised the competitive bar for attracting investment capital and is structured such that it benefits Microsoft yet severely constrains its primary competitors.

Congratulations on your promotions Gail, Luciano and Paul and best of luck in your new position Ravi.  And thanks again for your firms helping protect me from the intense criticism of putting forth honest top quality financial research free on the Internet during a time in which it was not fully appreciated.  Perhaps now would also be a good time to acknowledge to members of the press the extent to which your firms have utilized my research, especially given the nature of upcoming reports.  That would be most appreciated.