In Defense of Microsoft’s Deal for Skype

Despite all the nay-sayers, Microsoft's $8.5 billion deal was a win for Microsoft - even if they never make a dime from it.

Read the full post here on Forbes.

Sphere: Related Content

Will You Shut Up About This Being Another Internet Bubble Already?

Another Internet Bubble is not about to collapse. We have a few more years still. So party like it's 1996.

Read my full post at Forbes here.

Sphere: Related Content

Don’t Tell Mom, Cisco’s Board is Dead Asleep

John Chambers has got to go as Cisco CEO. For the last 4 years, he's been paid $56 million while the stock has dropped 35%. Here's what shareholders should do.

Read my full post at Forbes.

Sphere: Related Content

Video: What's Next For Cisco?

Contributor Eric Jackson says that stock sad sack Cisco Systems has a tough future. Even buying a bunch of smaller competitors are no guarantee of making this elephant dance.

Tue 02/15/11 14:58 PM EST -- Eric Jackson

Stocks in this video: BCSI | RVBD | APKT | FFIV | MSFT | CSCO

Sphere: Related Content

What Can Save Cisco?

By Eric Jackson02/10/11 - 03:15 PM EST

I participated in TheStreet.com's live blog last night covering Cisco's(CSCO) earnings call. It was a fun event. I particularly enjoyed watching peoples' reactions change as the call got well underway.

When Cisco's earnings report first came out, it looked like a "beat." Consensus called for earnings per share of $0.35 on revenue of $10.3 billion. The company reported earnings of $0.37 per share on revenue of $10.4 billion.

Initial responses from the majority of the live blog's participants -- most of whom appeared to be long the stock -- was positive. Cisco's shares briefly (maybe for about 30 seconds) traded in the green after yesterday's close. However, it didn't take long for the stock to start heading south -- quickly and steadily.

There was no mention of guidance in the initial earnings press release. Earnings season, however, definitely has a "show me" quality to it. The market seems to place even more weight on guidance than it does on whether current-quarter expectations are met (and God help any company that doesn't meet them).

Once revealed, Cisco's guidance was definitely tepid. The company forecasted earnings per share of $0.35 to $0.38 for the coming quarter. Analysts expected the company to guide to $0.40 per share.

Another cause for concern was the continued sag in gross margins, which were down to 62.4%. Wall Street was looking for gross margins of 63.3%.

As I mentioned on the live blog last night: though I have no position in Cisco, I interpreted yesterday's results as a big reason to sell the stock in the afterhours session. Often, if a stock sees a big, earnings-inspired move in afterhours trading, that move (up or down) gets extended further the next day when regular trading resumes. Deserved or not, that's just the way it's gone, whether it's Netflix(NFLX_) on the upside or Cisco here.

Shares of Cisco held above $20 during conference call last night but have been below $20 all day today.

When the call began, I was struck by a couple of things. First, John Chambers wouldn't shut up. He talked for a long time before he passed the ball to the CFO. Then, before taking questions, Chambers came back and talked even longer than he did the first time. The Q&A session didn't start until 50 minutes into the call. I think the endless droning worried analysts. If you keep talking about how everything is fine, it usually means everything's not fine.

.......

[** This post is an excerpt of the full article, which is available on TheStreet.com by clicking here. Free Site.**]

Sphere: Related Content

Yahoo!'s Bartz Provides Hope

06/24/09 - 09:03 AM EDT

YHOO , MSDT , GOOG , CSCO , INTC , COST , BRK.A

Eric Jackson

Yahoo!(YHOO Quote) holds its annual meeting Thursday and, unlike the previous two meetings, I'm not attending this year. It's not that I think the company is doing such a great job; it's that I sold all my shares in Yahoo! last September after being dismayed by the poor decisions being made by the board and senior management despite the company's many assets.

I didn't hold out much hope that the board would make the necessary changes to get the company back on track, after listening to it justify turning down Microsoft's(MSFT Quote) buyout offer last year and ignoring the high number of protest votes cast against the re-election of several directors in the prior two years.

But I do have to give the Yahoo! board credit in one regard: It hired a great CEO in Carol Bartz, and I believe she is doing all the right things since she came aboard to turn this company around. If she is allowed to execute the turnaround path she's on (and, really, why wouldn't she be although I wouldn't put it past Yahoo!'s board based on its track record?), Yahoo!'s stock has a much better chance of outperforming Google's (GOOG Quote) in the next two years, even if Google's operating performance and search dominance continue apace.

With Bartz, what's not to like about her turnaround focus? I went back to the "Plan B" I put forward -- with the support of other retail investors -- to Yahoo!'s board in early 2007 and it appears that a majority of these changes have now happened or are in the process of taking place. It also was refreshing to hear Bartz say recently that she agreed with the "Peanut Butter Manifesto" -- an internal Yahoo! memo that went public in late 2006 that called for much greater focus and simplification of overlapping efforts at the company.

Bartz hasn't let what I believe is a poor board of directors get in her way. For this reason, I was intrigued by her comments on Sunday to the Stanford Business School's Director's College. Bartz was full of opinions on what makes for a good board, with as many barbs tossed in the direction of sleepy directors as shareholder activists. The highlights were published by Barron's and offer a refreshingly candid viewpoint of a CEO on the topic of what makes boards work.

Here's where I think Bartz is right and where she's off-base.

Where she's right:

1. Getting a board of "high achievers" to work together well is tough.

Take any big company board and you'll find a gold-plated list of directors. These individuals haven't been asked to serve because they've been great team players. Typically, they've accomplished a lot. Throw six to eight "doers" into a room and ask them to get a task done as a team and they'll lurch around because no one has been appointed the clear leader and they all have an inherent bias to "jump in" and "fix" the situation. Throw into the mix that this is a team that only meets six times a year and you have a situation where a rhythm for working together never has a chance to develop.

In my view, without clear board leadership -- perhaps because there is no independent chairman, no lead director, or weak ones -- the pecking order of the group gets determined by a combination of who is favored by the CEO, board tenure, or dominant personality. Those factors don't translate into the most effective board discussions and decisions.

2. "We should have less middle-aged white guys."

Bartz pointed out that this narrow demographic makes up the vast majority of boards today. She spoke in favor of more diversity, but "not necessarily more women." (In fact, she discussed how one board tried to recruit her earlier in her career because it was "probably just looking for a skirt.")

I agree with her that it shouldn't matter if a director is named Jane, or John, or that he or she is this type or that type of person. What matters most is how that person will contribute to board meetings behind closed doors. The person needs to have a solid base of business and industry experience to knowledgeably examine and debate issues. Beyond that, diverse viewpoints can lead to better decisions if they help better analyze decisions. Unfortunately, Sarbanes-Oxley or stock exchange requirements define terms like "board independence" which lead to "middle-aged white guy" boards or diverse boards lacking sufficient industry experience.

3. Industry experience is a "must have" for any director.

Directors without industry experience are going to be less involved at board meetings. They are not going to want to make a comment or ask a question that might make them appear stupid. As a result, you can have an impeccably "independent" collection of directors surrounding insiders on a board, without any ability to advise or question those insiders about the business. This does no good for anyone -- unless those directors are well-paid and could care less about adding value or the insiders prefer lapdog directors.

"Industry experience" shouldn't limit directors to those who spent the majority of their careers working in that industry, but they must know enough about that industry to add value to any board discussion.

4. Have three hours of nothing planned at board meetings.

Bartz warns against the perils of over-structured and over-managed meetings. In my opinion, this is a common problem most boards have in which there is no opportunity to really debate issues, because too many "business updates" and "issue approvals" have been scheduled. Sometimes, the most valuable parts of board meetings happen during the unstructured discussions which occur in smaller side meetings or over lunch. There is great value in unstructured time during these meetings (although you must guard against the flip side of too much endless loop discussions resulting in no decisions).

Here's where I think Bartz is off-base:

1. "'Shareholder activism' is a simple but stupid concept."

What I think she's getting at in this comment is that she believes no two shareholders are the same. Everyone wants something a little different. At the Yahoo! annual meeting last August, people lined up to comment on, among other things, how (a) the board and management oversaw poor performance and inexplicably turned down the now-generous looking Microsoft offer, (b) Yahoo! didn't do enough to further human rights in China, (c) Yahoo!'s management had been unfairly criticized, and (d) Yahoo!'s fantasy sports content was fantastic and they should "keep it up."

Bartz was implying that anyone claiming to be a "shareholder activist" is really misrepresenting his own vested interests and those of the larger group. In my view, Bartz has a clear idea of where she wants to go as a manager and doesn't like anyone -- whether it's an incompetent director or misguided shareholder -- getting in her way. Sure, shareholders are a "big tent" -- just like political parties -- but they all follow certain universal truths, such as wanting to see the stock price go up (whether you're in a union, a pension holder, or an employee). She shouldn't paint activists with one brush, just as she goes out of her way to remind us that commentators shouldn't call her "old" because she's 60.

2. Get more current executives to serve on boards.

Bartz's solution to the "middle-aged white guy" problem is to get more executives from other companies to serve on boards. This would not only include CEOs but other senior talent coming up through the ranks that would bring more youthful perspectives with industry experience. I worry that these executives are already too overloaded by their day jobs and, although they'd likely want to add a few directorships to beef up their resumes, they would find it difficult keep up with the needed prep work, travel and participation in board and committee meetings.

These more youthful members of a board might also find it difficult to sit on the Cisco(CSCO Quote) board (as Bartz did when she met Jerry Yang) and challenge John Chambers, for example, about assumptions he was baking into next year's budget. In some ways, Sue Decker is a cautionary tale of the solution Bartz is proposing to the problem of narrow boards.

Decker, the former Yahoo! president, never really was able to get the company turned around successfully and yet kept piling on more board seats, including Intel(INTC Quote), Costco(COST Quote) and Berkshire Hathaway(BRK.A Quote)). As a Yahoo! shareholder during her tenure, I wished she'd never taken on any outside board seats and simply done her job, the remains of which Bartz is now trying to clean up.

From where I sit, Carol Bartz is doing all the right things as an operator of Yahoo! I hope she also will transpose many of her good ideas on corporate governance to the Yahoo! board, which could sorely use them.

Note: A new shareholder rights group called the Shareowner Education Network will be launched in Washington on Thursday, backed by some of the largest pension funds in the country. It will support issues such as promoting a shareowners bill of rights, mutual fund reform and proxy voting education. What's different about this group is that it's particularly focused on education and engaging retail shareholders as a group on these issues.

At the time of publication, Jackson was long Microsoft.

Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

Sphere: Related Content

Hey Microsoft, Use Debt Sale for M&A

05/11/09 - 12:25 PM EDT

MSFT , CSCO , IBM , ORCL , SHLD , YHOO , GOOG

Eric Jackson

This morning brought news that Microsoft(MSFT Quote) will be selling five, 10-, and 30-year debt as soon as perhaps later today. This makes a lot of sense. Microsoft has been overly conservative in how it's managed its business since its founding, due to the personal biases of Bill Gates.

Investors couldn't complain in the early days, but the last 10 years have been grim from a shareholder-return perspective. Even when you count the dividends you've received as a shareholder Redmond initiated that program in the early part of this decade, you still have seen total shareholder returns of almost -50% from holding Microsoft for 10 years -- far below the Nasdaq and Microsoft's chief competitors like IBM (IBM Quote), Oracle (ORCL Quote) and faster-growing Apple (AAPL Quote) and Google (GOOG Quote). That's depressing for Microsoft investors and employees alike.

From a capital structure perspective, Microsoft's antipathy toward debt has always puzzled investors. Here is a dominant franchise, with perhaps the most pristine balance sheet in the world and a remarkable cash-generating ability, and yet it still keeps an enormous amount of cash on its balance sheet and refuses to use debt.

There are two open questions regards this debt issuance announcement: (1) How much debt will they issue? and (2) How will they use it?

If Microsoft's history holds, the amount of debt issued through this will be modest. They've indicated that the offering will be "benchmark" size, which indicates at least $500 million. If you compare the debt-to-cash ratios of larger peers Oracle and IBM, Microsoft should be looking to issue much more than that. Oracle has an equal amount of cash and debt, implying that Microsoft should look at taking their debt load to $24 billion. IBM uses debt even more aggressively. IBM's debt-to-cash ratio implies that Microsoft could take on $60 billion in debt easily.

If Microsoft does announce that it will raise a lot of debt, that news alone will likely send its shares lower. The market might figure it plans another high-ball offer for Yahoo! (YHOO Quote) or to take over Facebook at the $16 billion valuation Microsoft agreed to at their last round. How the market interprets the amount of debt Microsoft raises very much depends on how they will spend it.

Microsoft has begun buying back stock in the last five years and currently has an open plan to buy back an additional $40 billion in stock between now and 2013. For years, several Microsoft investors have called on the company to buy back stock as a way of reducing the amount of cash inefficiently sitting on its books to its investors.

Microsoft has obliged over the last five years, using about $100 billion in capital to pay shareholders dividends or buy back stock. Yet that strategy has led to total shareholder returns over that period of about -25%. To be fair to Microsoft, the simple strategy of dividending out cash to shareholders and buying back stock hasn't worked out for many companies over the last two years, as companies like Microsoft and Sears Holdings (SHLD Quote) have watched billions of dollars of their capital used to buy back stock at now-inflated prices.

Continuing to just buy back more stock is not the answer for Microsoft's low stock price. The company needs to give its investors a strategy for how it is going to grow. Investors are currently pricing in the likelihood that Microsoft will essentially run itself like a utility for the next 20 years -- as well as spend money in areas like search or the Zune, which will never return the capital spent. They believe Microsoft's top line will stay flat.

Microsoft management has given investors no reason to believe otherwise. We've heard little to excite us about the future growth of this company, more about its obsession with getting a deal done with Yahoo! and catching Google. That's not a corporate strategy.

The status quo isn't working at Microsoft. There needs to be a plan for growth at Microsoft, and it needs to involve acquisitions. The business press is littered with articles about how IBM, Oracle, and Cisco(CSCO Quote) will be using their strong balance sheets to pick off once-in-a-generation priced acquisitions in the next year -- yet Microsoft's name is never mentioned as another suitor. With its cash-generating ability and more capital from a debt offering, it should be in the mix.

To be successful in the long run, Microsoft needs people to green-light the best acquisitions and teams of people with the right skill sets to integrate them. Frankly, Microsoft hasn't shown it has either of those abilities. Microsoft investors don't need another expensive aQuantive deal or Facebook investment that smacks of desperation and has questionable long-term value for the company's shareholders. It needs to take a page out of IBM's and Oracle's playbook, though, and start doing deals to grow its top and bottom lines.

A big debt issuance, with a skilled acquisition team, and evidence of some exciting growth-related deals could suddenly show the market that this elephant can dance again.

TheStreet.com

At the time of publication, Jackson was long Microsoft.

Eric Jackson is founder and president of Ironfire Capital and the general partner and investment manager of Ironfire Capital US Fund LP and Ironfire Capital International Fund, Ltd.

Sphere: Related Content

Betting on M&A Skills

We constantly hear about tech companies' strong balance sheets. While some, like Apple (AAPL) and Microsoft (MSFT), seem intent on building the largest pile of cash possible, others will no doubt use their cash to begin making acquisitions in the next year.

One lens to apply to your stock selection then should be judging a company's M&A purchase and integration skills. Some companies -- like Yahoo (YHOO) and EBAY -- have a track record of making lots of unrelated acquisitions at inflated prices (today we read about YHOO shutting down its 1999 GeoCities group because it's not competitive). EBAY is now in the process of unwinding itself from that failed approach and it's likely that things will change in this regard under Carol Bartz at YHOO.

When MSFT has made acquisitions (like aQuantive or its investment in Facebook), it's over-paid, giving the sense it's more desperate than thoughtful. Fears about its lack of M&A integration skills among its management team helped push investors to urge Ballmer to drop the YHOO bid last year.

The three tech companies who have proven themselves adept at making strategic deals at fair prices and then quickly integrating them into the fold are Oracle (ORCL), IBM, and Cisco (CSCO). There are more deals ahead for the sector and these companies have an edge for their shareholders in seeking out the best of what's for sale.

Position: Long MSFT.

Originally published in RealMoney.com on 4/24/2009 9:43 AM EDT

Sphere: Related Content

Chicago Sun-Times: Moto's rising star heads to Cisco

Highest ranking woman's departure comes on heels of Zander's move

From the December 4, 2007 Chicago Sun-Times

BY HOWARD WOLINSKY Staff Reporter

Padmasree Warrior, 47, who left Monday as chief technology officer at Motorola emerged today as CTO at Cisco Systems Inc., the San Jose, Calif., networking and communications technology company.

She left Motorola on the heels of the announced departure of her boss, Ed Zander, Motorola’s chairman and chief executive officer .

In her personal blog at Cisco, she said: “It is an exciting time to join Cisco. Cisco is the company whose leadership legacy defines ‘The Network’ in many ways. Today, it is a company driving many new paradigms in communications and information technology. In the future, it will be a company poised to lead the industry to the next phase of Internet.”

As Cisco CTO, Warrior will play a key leadership role in the continued development and communication of Cisco’s technology strategy and vision, working directly for Cisco Chairman and CEO John Chambers.

Chambers described Warrior as a “technology visionary.”

Warrior said the next generation of the Web will be marked by “collaboration, Web 2.0 and always on demand. Cisco has been at the forefront of this shift, where the network becomes the platform to deliver the next wave of applications and services.”

Warrior, who became Motorola’s CTO under Chief Executive Chris Galvin in 2003, was credited with Motorola’s “seamless mobility” approach of having people communicating from any location over any device. Seamless mobility was adopted by Zander, 60, who joined Motorola in January 2004.

Warrior was the highest ranking female executive in Motorola’s nearly 80-year history.
“Over her distinguished career, Padmasree has demonstrated the key characteristics we prize at Cisco, including an unwavering commitment to customer success and innovation,” Chambers said. “She is a technology visionary, an excellent leader with a strong industry voice and business acumen, and we are thrilled to welcome her to our leadership team."

At Motorola, Warrior presided over the company’s $4 billion-plus research and development budget and 26,000 engineers.

The 47-year-old chemical engineer had been called a “rising star” by Fortune Magazine, but her own star may have fallen with the downturn at Motorola, which dropped to No. 3 in cell-phone sales in the third quarter after Nokia and Samsung.

Eric Jackson, a blogger, Motorola shareholder and corporate strategy governance expert, said, “I think Warrior leaving is a definite plus. She wasn’t well-liked among those I spoke with and
she also wears the lack of compelling new phones/features.”

He has called for the break-up of the company.

A company spokesman said Motorola had been realigning the technology organization since October in anticipation of Warrior leaving. Rich Nottenburg, Motorola’s chief strategy officer, was put in charge of Motorola’s overall technology vision.

Zander said Friday he will leave as CEO Jan. 1 and will be replaced by Greg Brown, Motorola’s president. Zander will leave as chairman after May’s annual meeting. The board has not named a new chairman.

Warrior said in a 2003 interview with the Sun-Times: “I know Motorola very well. I grew up in the company.” She joined the company’s semiconductor business as a chemical engineer.
She received her degree in chemical engineering from the prestigious Indian Institute of Technology, New Dehli, and has a master’s degree in chemical engineering and semiconductor production.

Before being promoted to be chief technology officer, Warrior ran Motorola’s energy systems group in Atlanta.

Was the fact that she was a woman a big deal?

She told the Sun-Times, “Yes and no. I think I have one of the most challenging assignments in defining the future of the company. The fact that I’m a woman doesn’t have any significance.
But I definitely I see myself as a role model for lot of the women who want to get into engineering, not just at Motorola. Out of 250 students in my class at IIT, only seven were women. I always talk to students in elementary school to encourage more and more girls and eventually women to get into the field of science and engineering. In that context, that’s my passion, I’d like to see more diversity.”

In September, she was inducted into the Women in Information Technology International Hall of Fame. The Economic Times recently ranked Warrior the 11th Most Influential Global Indian, and she was awarded the Distinguished Alumni Award from Indian Institute of Technology, New Delhi.

Working Woman magazine honored Warrior with its “Women Elevating Science and Technology” award in 2001.

Warrior served on the boards of Chicago’s Joffrey Ballet and Museum of Science and Industry, and the Chicago Mayor’s Technology Council, as well as other boards outside Chicago.

Sphere: Related Content