02.18.10
Microsoft and the “Debt-Financed Balance Sheet”
Summary: Microsoft’s debt and Novell’s debt revisited
A COUPLE a years ago we noted that Microsoft had lost 18 billion dollars in 1998 (when Microsoft was in huge trouble with the law, later to face breakup) and a few days ago we wrote about Microsoft's CFO being paid millions of dollars under peculiar circumstances that are familiar [1, 2].
The following new post is titled “Can big companies adapt?” It refers to the fact that Microsoft fails to innovate while Microsoft itself is lying about its innovations [1, 2, 3, 4]. Here is the curious part about “debt-financed balance sheet” (as above):
You start. You struggle against initial inertia to gain velocity. You succeed. You grow. Your success breeds more success. Momentum is now your friend. But the world changes: technology, markets, society… And your hard won momentum keeps hurtling your (now large and profitable) company down the same trajectory. And momentum is now your enemy. Ah, the joys of…inertia.
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This indeed was my prescription for Microsoft when I wrote two years ago that they should break-up the company and re-jig the capital structure, running the Windows/Office businesses for cash (with a debt financed balance sheet) and let a thousand new baby Microsofts bloom.
We wish to remind readers that Microsoft is already borrowing money and just because a company has money in the bank does not mean that it’s not borrowed money. Two years ago, around March of 2008, Microsoft’s CFO (the one who left and was mysteriously paid millions of dollars not to speak out or to sue Microsoft) was approaching the bank for a potential loan of over $20 billion. This was reported by the mainstream press, Reuters included. For those who do not know, Novell was about half a billion dollars in debt just a few years ago (it still has a considerable debt). It is not unusual for companies to quietly operate under debt, but that being the case, we thought it was worth bringing up. █
