My expectations are that the chattering classes will be all over Microsoft’s buyback announcement: A $20 billion tender offer for up to 808 million shares (8.1% of the common outstanding). It a Dutch auction running until August 17th. The price range is 22.50 to $24.75. There was an additional authorization for as much as $20 billion more in buybacks through 2011. In after hours trading, the stock popped 5.5% to $24.11.
The 24% fall in net was blamed on Legal costs — of course, those
costs are not as innocent as the IR spin makes it sound; they are the direct result of
management’s bad behaviors.
I am a big believer in variant perception: trying to identify what the
crowd either doesn’t know or is overlooking. My take on big cap tech,
on why the previous bull market stars don’t lead are examples of this.
So what is the variant perception of the Microsoft buyback? We know Mister Softee has been a cash cow, we also note that since their prior $32 billion special dividend, the stock has dropped about 25%. So this time, the thinking went, lets try to financially engineer the stock price higher and reduce the past decades’ stock option dilution.
To me, this as an admission of defeat. In Redmond, the thinking apparently is "We simply don’t know what the hell to do with all of our cash." Outside of Windows and Office, just about everything else they have tried is a bust. SQL Server database can be called a successful moneymaker, but that’s where it more or less ends. Even X-Box — very successful in terms of unit sales — is a giant money loser.
Every other initiative, project and concept is, to use the more polite phrase, "borrowed." Microsoft is like the rich kid at school trying to buy their way into the cool clique. I still find it astonishing that people call these guys innovators.
Consider the "innovations" they have piled up recently:
• Search (Yahoo, Google)
• Xbox (Sony, Nintendo)
• MSN Spaces (Blogger, Typead)
• MSN VIdeo (You Tube, Google Video)
• The new Microsoft "iPod" (Apple, Creative)
(feel free to list your own favorite MSFT "innovations" in comments)
Hell, even the Dutch auction stock buyback was copied from Google.
As the worlds activity and focus moves from the desktop to the internet, they are hard pressed to keep up. The internet is in a veritable Cambrian explosion of new life forms. I don’t believe the future belongs to YouTube or My Space or Google — but to all of the creative and innovative companies, incrementally experimenting, expanding, and creating new ideas and programs on the internet.
Microsoft just ain’t one of them.
UPDATE: July 21, 2006 1:15pm
A few items from comments worth highlighting:
"Want to unlock Microsoft’s potential? Instead of buying stock to prop
up the price, have the company spin off the different businesses into
their own wholly owned subsidiaries and make them compete and turn a
profit or die."
Sounds about right to me: Stake the businesses with some cash, and set them free by spinning them off to shareholders to compete in the marketplace (while still owning 50% of them)
Oh, and by the way: its worth noting that Oracle is making 52 week highs today !
Profit Lags as Microsoft Spends to Meet Competitors
NYTimes, July 21, 2006
Microsoft Net Falls Amid Legal Costs
Investors Are Cheered As Purse Strings Loosen For Share-Buyback Plan
ROBERT A. GUTH
WSJ, July 21, 2006; Page A3