IN the previous post we showed technical inferiority at Microsoft but did not discuss financial problems. Microsoft receives some downgrades these days (a Standard & Poor’s analyst and Credit Suisse help Microsoft's stock not at all), so it's a mixed forecast. Microsoft has increased dividend only to see it being rather ineffective:
Microsoft's Fatter Dividend Doesn't Spur Buying Interest
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Shares of MSFT will now have a dividend yield of 2.54%, based on the new dividend payout and last night’s closing stock price of $25.15. The stock has technical support in the $23-$24 price area. If the shares can firm up, we see overhead resistance around the $27-$28 price levels. We would remain on the sidelines for now.
“I have seen companies go bankrupt, and latter be reborn, without debt.”
--ChipsA reader of ours, Chips, quotes an article as saying that "Microsoft intends to use the net proceeds from the offering for general corporate purposes, which may include funding for working capital, capital expenditures, repurchases of stock and acquisitions."
"Yes, debt," said our reader, "but look at the impending debt with this next article: 'Microsoft Corporation (NASDAQ:MSFT) has raised quarterly dividends 23 percent to 16 cents per share. Microsoft Corporation (NASDAQ:MSFT) has raised quarterly dividend by 3 cents to 16 cents per share, a 23% increase, and has obtained approval from the board to sell additional debts worth $16 Billion.'"
"The way I read this," remarked the reader, "is that MS has already sold 4.75 billion in debt, in addition to whatever debt they already have, and is planning more debt up to another 16 billion. I know it's cheap for MS to borrow money right now. But one has to wonder, if they are really sitting on a pile of money, wouldn't it just be cheaper still, to use that? And if they simply do not want to move money from one country to another, to avoid paying taxes, then doesn't that imply that MS is not making money in some countries, or worse, perhaps avoiding taxes illegally?
"I have seen companies go bankrupt, and latter be reborn, without debt. Basically these were small companies, usually owned by a handful of people. They managed to keep all the machines they owned. Bankruptcy laws vary from country to country. I say it might be possible for MS to game the bankruptcy system in the future. Divisions can be spun off. Shell companies can buy divisions as well. All I am saying here, is not to trust MS with your money. This is a company without ethics."
Another reader brought to our attention this older article which says:
Microsoft makes 60 percent of its profits on Windows, 60 percent on Office, and minus 20 percent on everything else, they said.
Sort of jibes with what some of the Microsoft financial services guys say—if you aren’t a developer or a salesperson, Microsoft doesn’t know what to make of you.
Microsoft (MSFT) offered $4.75 billion in AAA-rated bonds yesterday at rates nearing record lows. The software behemoth boasts an impeccable balance sheet with $37 billion in cash on hand against a minor $6 billion in strategic debt. Microsoft is a cash machine generating $24 billion in operating cash flow over the last 12 months. Given the company's standing, investors would clearly be willing to accept very low yields. Yet, the pricing was still fairly astonishing given what it implies about expectations for economic growth.
Last night one of my connections told me that Oracle is working really hard on the next version of Open Office. He isn’t close enough to the situation to have solid details, but he was told that Oracle is aiming to take Open Office from good, to fantastic. If Oracle manages to do this, it could do a huge amount of damage to Microsoft, as Microsoft’s main cash cow is Office. And of course ever office suite installation that Microsoft loses to Gnome Office, Google Docs, IWork, KOffice, OpenOffice, Word Perfect Office, and that other available alternatives has a major impact on profitability.
In the fall of 2009 I predicted that Microsoft would enter Chapter 11 Bankruptcy Protection in five years, based on my reading of their United States Security and Exchange Commission filings. That was before I was aware that Microsoft was in debt – my thanks to Dr. Roy over at Techrights for digging out this information. Attempting to fully evaluate Microsoft’s current financial health is difficult. The company regularly moves products from one division to another. While other companies also do this, in Microsoft’s case a lot of the moves appear to make to have no rational basis, leading me to believe that Microsoft is doing this to hide the true financial health of the company.
#techrights). The future is mobile/mobility and Microsoft does atrociously there, leading even to Slate/mobile/Courier-related departures and layoffs.
A former independent documentary filmmaker turned financial analyst, David Zilkha began working at Pequot Capital in April 2001, fresh out of his job as a product manager at the Microsoft office campus in Redmond, Wash. Educated at Oxford and Columbia universities, Zilkha wanted to enter investment management after working in the technology industry. He landed an interview with Pequot founder Arthur Samberg in January 2001.
The next month, Samberg e-mailed Zilkha, asking him for his current views on the software giant's fiscal situation. Samberg said he was not impressed with his analysts' research on Microsoft. That's where Zilkha came in. In the first of several e-mails Zilkha wrote to Samberg, he replied, "The worst is over for Microsoft," according to a SEC complaint. The next month Samberg bought a long position in Microsoft stock.
During the following weeks Samberg was buying and selling Microsoft stock based on conflicting information. He sold his long position because of predictions that Microsoft would fall short of its quarterly earning estimates. A few weeks later, however, he bought another long position when he heard good news about Microsoft's latest operating system, Windows 2000.
In April, Zilkha was still employed by Microsoft. He got an e-mail from Samberg, asking for "tidbits" about Microsoft's earnings. Zilkha told him to buy Microsoft stock as soon as possible. He then e-mailed coworkers, asking them about the quarterly earnings.
They told him Microsoft would meet or surpass its earning estimates. Zilkha relayed the information to Samberg. In April, just before the earning estimates went public, Zilkha told Samberg that the Microsoft chief financial officer seemed relaxed and that his disposition "augurs well."
By the time Microsoft's earning statements were released in April 2001, Samberg had bought 21,000 call options in the software conglomerate's stock. A friend of Samberg also bought 300,000 shares based on his recommendations. Pequot's Microsoft stock increased in value by $14 million. Samberg's friend made $372,000 on his own trades.