The Bear Case For $MSFT

From @BloombergTV today:

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Eric Schmidt Says Google Would Love to Replace Microsoft as Yahoo!'s Search Partner

No one is reporting that Eric Schmidt said overnight in Tokyo that Google would love to be Yahoo!'s search partner again.

Read the full post in Forbes

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It's Official: Google Today Is Just Where Microsoft Was in 1999

Google (GOOG) looks a lot more vulnerable to the accusation that it’s become the new Microsoft (MSFT) today compared to even a year ago.

Several people have said that Google’s co-founders, Larry Pageand Sergey Brin, have sought to build their company so that it wouldn’t make the mistakes that Microsoft did in the 1990s.

Well, surprise, Google today seems a heck of a lot similar to where Microsoft was right in 1999 – the year after Google was founded.

Read the full post in Forbes

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Likely Buyers for RIM? Amazon and Microsoft/Nokia

RIM (RIMM) now has the fear of the God in them it seems.

That’s good, although they’ve still got a tough road ahead of them — especially with a lot of their leadership walking out the door.

What’s juiced the stock this morning is that investors think there’s a glimmer of hope the board might consider a full buyout of the Canadian company.

Read the full post in Forbes

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How Jim Balsillie First Discussed the Competitive Threat of iPhone to the BlackBerry

Here is how Research In Motion's Jim Balsillie sized up the iPhone in 2007.

Read the Forbes post here.

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Why Microsoft Would Be Making Money on Yahoo! If They'd Bought It In 2008

The conventional wisdom that Steve Ballmer dodged a bullet by not buying Yahoo! in 2008 is wrong. Even if he'd bought it for $33, he'd be ahead of the game by now.

Read the full post in Forbes.

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What's Not to Like About Microsoft?

By Eric Jackson
RealMoney Contributor
7/21/2011 3:00 PM EDT
Click here for more stories by Eric Jackson

After today's close, Microsoft (MSFT - commentary - Trade Now) reports second-quarter earnings. With great results already in from Apple (AAPL - commentary - Trade Now), IBM (IBM) and Google (GOOG -commentary - Trade Now), can we expect good things from Mr. Softee? I think so.

Analysts expect earnings of 58 cents a share on revenue of $17.25 billion. Over the past year, Microsoft has typically beaten EPS estimates by 10%.

I'm warming up to Microsoft. Despite Greenlight Capital's David Einhorn calling for Steve Ballmer to step down, there have been very promising developments at the company under the CEO's watch. I believe Microsoft may be at the brink of its best run since Ballmer took over.

Consider:

• Skype looks like a winner. Microsoft will be able to use it for both its consumer and business customers, giving it twice the utility that a Google or a consumer company could have. That justifies the higher acquisition price paid, and Skype allowed Microsoft to use some of its plentiful foreign cash.
• Xbox seems to be the only game console that's still growing. Its latest sales numbers look very healthy. Call it a bump from motion-detecting Kinect, but it's still working.
• Kinect is probably the most exciting homegrown technology to come out of Microsoft Research. There are thousands of applications for the technology. It's something you would have expected from Apple, not Microsoft.
• Windows 8 is rumored to be coming out sooner than expected.
• Microsoft's cloud offering, Office 365, looks solid.
• The company recently beat Google to claim part of Nortel's treasure trove of patents. This allows Microsoft to pursue its strategy of claiming part of the ongoing revenue stream from the growth of Android devices. It seeks $15 per handset from Samsung for its Android phones. HTC has already agreed to pay Microsoft $5 a phone.
• Windows 7 phones have yet to appear, but Microsoft hopes to sop up the low-end of the growing smartphone market with Nokia (NOK - commentary - Trade Now) as its key partner.
• Research In Motion (RIMM - commentary - Trade Now) keeps bleeding market share. With no new phones from RIMM featuring the QNX operating system planned until late 2012, its market share should continue to drop precipitously. Microsoft should be in an even stronger position to pick up share from RIMM's stumbles.
• Office, even before the cloud offering, has never been stronger. Google Apps is nowhere.
• There is no expectation for search engine Bing to do well, yet it keeps chipping away at Google's market share.

What else could drive this stock? A recent anonymous letter to Microsoft (later said to be from Ivory Investment Management) presented several sound suggestions for managing its cash:

• Use 100% of its domestic free cash flow, while borrowing against free cash overseas, to make a big, one-time buyback now (borrowing at 3% to buy a stock that has a 12% free-cash-flow yield).
• Make regular buybacks thereafter (9% of the float each year).
• Increase the dividend to 6% from 2.3% (I suggested this kind of dramatic increase last year, but to no avail).

Ballmer will see a big buyback as a non-starter -- been there, done that is his likely response. He also has a deep skepticism of "quick fixes" suggested by Wall Street.

It is reasonable, however, that Microsoft's board could be convinced that a more dramatic dividend yield -- along with regular buybacks -- is beneficial to all and doesn't impinge on the growth of the company. Should that happen, there could be a dramatic repricing in the stock's shares.

There's also the chance that Ballmer quits. There's likely to be a one- or two-day pop in the stock if that happens. But my read is that Ballmer isn't going anywhere. I believe he knows that he has something good at Microsoft. If I were Ballmer, hearing Wall Street's bellyaching for 10 years, I'd want to be around when several initiatives in the works finally come to fruition.

Original post from RealMoney.com

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What Does Microsoft Have Up its Sleeve?

By Eric Jackson06/29/11 - 07:00 AM EDT

NEW YORK (TheStreet) -- The price action in Microsoft(MSFT_) this week has been unusual to say the least.

The stock jumped 4.5% on Monday. That would be equivalent to Sina(SINA_) jumping 45% in one day. That just doesn't happen for Microsoft.

The stock also followed through nicely yesterday moving up another 1%. There wasn't any real news to explain the move in Microsoft, although some pointed to a Tuesday cloud-computing conference Microsoft was hosting or a report that they would move up the release date of Windows 8.

That leads me to speculate on the real story behind the move which probably a few insiders are only privy to at the moment.

It could be that Steve Ballmer has said something to some close confidantes about leaving the CEO position. (And maybe he doesn't know them as well as he thinks he does, because they've now blabbed about it to some trader friends who are jumping on the news to buy anticipating a big relief rally.)

David Einhorn has said previously that he hopes to see Ballmer gone as CEO, as he thinks he's a weight on the stock. I don't disagree that there would be a rally on the news but I just don't believe Ballmer is ready to leave.

Ballmer has only been there 10 years but, more importantly, he owns 5% of the company. He's essentially a co-founder with Gates and Allen. That means he gets to leave when he wants and I just don't think he's ready to go out when some New York hedge fund manager tells him to.

The other possibility is that the U.S. government will let Microsoft and other big corporations repatriate all their offshore cash back home. Many people seem to believe this will be a boon for the domestic economy as corporations will be able to invest more back home.

Maybe that will happen. And maybe it will be good for the economy. And maybe that's why all stocks have been up this week. But if that is the reason behind Microsoft's jump in its stock price, why haven't we seen a similar move in Cisco(CSCO_) which also has a big cash hoard outside the U.S. There has to be something else.

......

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

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CNBC: Ballmer vs. Einhorn

My thoughts on Ballmer vs. Einhorn:

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Microsoft: What Wall Street is Overlooking, Part 2

By Eric Jackson10/14/10 - 09:00 AM EDT

This is the final installment of TheStreet's interview with Bill Koefoed, Microsoft GM of Investor Relations. Click here to read Part 1.

Eric Jackson: How are you going to play in social -- just through your investment in Facebook?

Bill Koefoed: There are a bunch of ways that we are driving social experiences across our platforms, products and services. Xbox Live and Windows Live are obvious ones; we are doing some very interesting things with Facebook through Bing, and that will be a place to watch. We are also bringing social into our collaboration offerings, including Office 2010, and it will be a space to watch moving forward.

Why doesn't Steve sit in on the earnings calls with Peter? Jobs and Schmidt don't, but Bartz and Balsillie do. Why not Steve?

Steve participates in a large number of externally-facing events, such as the Windows Phone 7 launch. He delegates the investor-related activities to Peter and myself as we have the best day-to-day interaction with investors, view to the numbers and the questions that investors are asking. He obviously participates in our financial analyst meeting and meets with investors from time to time.

What do you think is the biggest misconception of Microsoft(MSFT_) among investors and analysts? Who is responsible for that misunderstanding?

We are in a lot of businesses, and a lot of markets. Some of the places we are investing in today like cloud, search and mobile are emerging and critical to long-term growth. Others, such as Windows and Office have competitors, but we continue to innovate and drive increasing value to customers.

Since 2001, Microsoft has grown revenue from $25.3 billion to $62.5 billion in 2010, a CAGR of 11%. EPS has grown from $.66 to $2.1, a CAGR of 14%. Our Server and Tools business has grown to be a $15 billion business. We've grown new billion-dollar businesses: Xbox (+ Xbox Live), SQL Server, System Center, Unified Communications (Exchange), SharePoint, Developer Tools (Visual Studio), Dynamics (ERP & CRM), Online Advertising (display & search). I think that people lose sight of our ability to grow and scale.

Do you think there are any big misconceptions about your competitors in different spaces?

Google (GOOG_) has been making lots of claims when it comes to cloud computing, while businesses are continuing to buy Microsoft. Today, more than 40 million people are using Microsoft Online Services, which are available in 41 countries and regions around the world. We are tapping 20 years of productivity experience while they (Google) tap advertising experience. If you look at the traction Google has claimed - they are now backtracking. Customers and educational institutions recognize they are not prepared for business needs.

A lot of investors are still scared by the whole Yahoo!(YHOO_) hostile bid foray. They're concerned that you guys are not sure of yourself. You wanted to do the deal, then you didn't (thank goodness for investors). The concern going forward is: How are you going to look at M&A now? You haven't done any deals this year while Google has done a bunch. Is that indicative of what we can expect going forward?

We feel like we have the right partnership in place with Yahoo! that will help us gain the scale and relevancy needed to drive success in our search business. This combination now makes up for almost 30% of the U.S. search market. Not all of our acquisitions are made public, and that goes for most companies. Our philosophy on M&A has not changed; most often we look to do small acquisitions that complement our organic growth -- tuck-in acquisitions. Talent is the most important part of any deal.

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

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Microsoft Might Finally Use Its Cash

By Eric Jackson09/15/10 - 08:00 AM EDT

Late Monday afternoon, a Bloomberg article appeared quoting an unnamed source suggesting that Microsoft(MSFT) would look to tap the debt markets and use the money to fund a higher dividend and do more stock buybacks. The stock ended up more than 5% in the last hour of trading. For Microsoft, that's a monster move.

The company has come under increased shareholder pressure to disgorge its ample cash to shareholders. Last month, I filed a shareholder resolution to be voted on this November at the shareholders' meeting calling on Microsoft to dramatically increase its payout ratio on its regular dividend, as well as considering stock buybacks.

Last week, Microsoft CFO Peter Klein spoke at theCiti(C) Tech conference and got an earful frominvestors in the Q&A about the dividend and cap structure. Klein and Microsoft Investor Relations GM Bill Koefoed also spoke last week to many Microsoft holders, including me, about their views on these questions.

Although I can't disclose what they said during our meeting, here is a summary of my argument to them:

Microsoft is greatly under-appreciated by investors today at current levels. Yet, the company can take its greatest weakness (the perception that it has all this excess cash because it is not growing as quickly as its younger, nimbler rivals) and turn it into its greatest strength (by using its cash to payout a dividend that gets yield-hungry investors to sit up and realize that holding Microsoft is safer than U.S. Treasuries).

There is constant reference in the media these days for "the hunt for yield" by investors, but Microsoft is never mentioned even though it is best positioned to take advantage of this secular trend.

Every pension fund in America today has promised its pensioners it will deliver 8% annual returns forever. They are having trouble in the last three years meeting that commitment. They -- and other large and small investors -- would beat a path to Microsoft's door if there was a substantial increase in the regular dividend.

The status quo for Microsoft of stock buybacks and marginal annual increases to the regular dividend (which returned $16 billion in cash to shareholders last year) isn't working given thestock price. Microsoft needs to be bold.

There are 3 levers that Microsoft can and should pull to get investors' attention in the coming weeks:

1. Most important, in my view, is to substantially increase the regular dividend. I believe it should be nothing less than a doubling of the dividend. Investors would be happy to sit and wait for the market to better see the value in the stock if they were getting a whopping payout. A large increase in the payout would also assuage investor fears that Microsoft might do a large, ill-advised acquisition (like Yahoo!(YHOO) or Research in Motion(RIMM)) which would waste shareholders' money on declining assets.

Although some in the media have raised the question about how wise it is to increase the dividend with the uncertainty of the dividend tax rate, I asserted that I thought this issue was irrelevant. Even assuming the rate goes up, that argues even more for why a drastic increase in the payout is necessary just to tread water.

2. Tapping the debt markets. Johnson & Johnson(JNJ) recently raised $1.1 billion in the debt markets selling 10- and 30-year notes at record low rates. JNJ paid 2.95% on their 10-year notes. In May 2009, Microsoft made its first foray into the debt markets, selling $3.75 billion. Back then, Microsoft paid 4.2% on their 10-year notes.

Why not raise the cash at these levels, especially when Microsoft is seen as more creditworthy than the U.S. government and is one of only a handful of AAA corporate issuers. I reminded Klein that I'd written an article prior to their first debt offering where I pointed out that Microsoft could issue $60 billion in debt and only match IBM's (IBM) current debt-to-cash ratio.

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

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Microsoft Gets an Earful From Investors

By Eric Jackson
RealMoney Contributor
9/9/2010 5:02 PM EDT
Click here for more stories by Eric Jackson

Last month, I filed a resolution with Microsoft (MSFT - commentary - Trade Now) to bring to a vote at the planned November shareholder meeting the issue of dividend policy. I am in favor of a drastic increase in Microsoft's regular quarterly dividend (perhaps along with additional stock buybacks) -- on the order of doubling it. The company could easily support such an increase out of its operating cash flow, and doing so would attract new buyers and raise the stock price.

During this past week, many other Microsoft holders have apparently been saying the same thing -- directly to Microsoft CFO Peter Klein.

Klein, along with Microsoft head of investor relations Bill Koefoed, was in New York this week to present at the Citigroup Technology Conference. He took time during his visit to stop in and chat with many institutional investors in the city. According to Klein's comments at the conference, the dividend issue was front and center in those discussions.

What's more, it appears as though the company's board is seriously considering the issues of an increased dividend, more buybacks and tapping the debt markets when money is so cheaply available.

In my resolution, I suggested strongly that Microsoft double the regular dividend. Klein's comments on this point and other related thoughts are laid out below.

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Question: I'm curious about how high a payout ratio pro forma you'd be comfortable with. It could be the thing that really puts focus back on the stock in terms of all these other levers. If the yield is outside, or perceived to be outside, it just will drive the common price up. So, that analysis was, I think, about a 50% payout ratio. And you're around 25% now. So, is there any color you could give us about how comfortable you are in moving toward 50%?

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How Microsoft Can Avoid the HPQ Trap

By Eric Jackson
RealMoney Contributor
9/2/2010 5:00 PM EDT
Click here for more stories by Eric Jackson

Earlier this week, Hewlett Packard's (HPQ - commentary - Trade Now) board announced it was undertaking a $10 billion stock buyback. It plans on spending $3 billion of that this quarter. It only has $14-15 billion in cash on its balance sheet. And don't forget, it has just snatched 3Par (PAR - commentary -Trade Now) from the jaws of Dell (DELL - commentary - Trade Now) for $2.4 billion.

Investors cheered the news of the buyback. On the day of the announcement, an otherwise dismal trading day (unlike yesterday), HP was the only positive stock in the entire S&P 500. Wouldn't this suggest that buybacks are a great way to increase shareholder value? Well, to answer that question, in my view, you have to ask: great as opposed to what?

Of course, HP's decision to spend a big wad of its cash on buying its own stock is much better than what it was doing previously, namely:

Nothing, letting cash accumulate on its balance sheet, and

Trying to buy a company at a 200% premium.

Buybacks are also preferable to paying an enormous one-shot dividend to shareholders, as Microsoft(MSFT - commentary - Trade Now) famously did a few years ago when it shelled out over $3 a share. Why should shareholders hold on to a company's shares after they've gotten their lottery-ticket bonus? Should they hang around and hope that the lucky lightning will strike twice?

A much preferable alternative, which HP should have considered -- and which Microsoft's board still has the chance of choosing -- is to dramatically increase the regular quarterly dividend. What am I talking about? Isn't this all financial engineering? Stock buybacks versus dividends? Next, surely, I'm going to be talking about Modigliani and Miller and ideal capital structure?

Well, that is mostly likely the reaction of Microsoft chief Steve Ballmer and many senior executives at S&P 500 companies when this topic comes up. I'm sure Steve Ballmer becomes more frustrated than most on this topic, because he must believe that he's tried to do the right thing in the past to appease shareholders -- that famous one-time dividend and many buybacks and dividends -- and it hasn't worked.

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[*** This post is an excerpt of the full article, available by clicking here to go to RealMoney.com. Note: subscription required. ***]

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Microsoft Should Raise Its Dividend

By Eric Jackson, Senior Contributor08/25/10 - 06:59 AM EDT

As a long holder of Microsoft(MSFT), I submitted last week a resolution for Microsoft to significantly increase its quarterly dividend.

It's my hope and intent that Microsoft will put this resolution to a free vote of its shareholders at November's shareholder meeting in Seattle. I believe that a vast majority of other Microsoft investors will feel similarly to me on this subject even though I've yet to speak with them.

A copy of the formal resolution sent to Brad Smith, Microsoft's general counsel and corporate secretary, can be found here.

The actual resolution is simple:

RESOLVED, that Microsoft Corporation's shareholders recommend that the board of directors of Microsoft adopt a policy requiring an immediate significant increase in the quarterly paid dividend to shareholders or an equivalent significant increase in annual Microsoft-sponsored purchases of its own stock on the open market.

To back this up, however, I was allowed to provide the following supporting statement:

While all Microsoft shareholders hold a belief that the Company's stock will increase in value over time as the Company increases its operational performance, there has been frustration that the Company's stock price has decreased 55% over 10 years from January 1, 2000 through July 26, 2010. Even with special and quarterly dividends received from the company, over the last 10 years, through July 31, 2010, Microsoft's total shareholder returns are -8.53%. Over the same period, the S&P 500 has returned -7.36% (including dividends).

During the last 10 years, many shareholders have called on the Company to pay a dividend and conduct stock buybacks, given the Company's strong cash position. As of June 30, 2010, the Company had $36.73 billion in cash on its balance sheet, and a trailing twelve months of operating cash flow of $24.07 billion.

Microsoft has initiated a quarterly dividend payment during the last 10 years, commenced doing stock buybacks, and paid a one-time special dividend in 2005.

At a $0.52 per share annual dividend yield, Microsoft is currently paying over $4.5 billion in dividends to shareholders. While that absolute number sounds large, it's actually quite small on a relative basis compared to other S&P 500 companies. Microsoft's forward dividend yield as a percentage of its operating cash flow is 18.7%. The corresponding percentages for Pfizer (PFE), Lorillard (LO), Duke Energy (DUK), and AT&T (T) - who are all among the current list Top 40 companies in the S&P 500 paying the highest dividend yield - were 82.1%, 49.7%, 29.2%, and 28.9% respectively. It's noteworthy that none of these companies has similar cash balances (or unused access to the debt markets) as Microsoft.

We believe that Microsoft could easily double its dividend or spend an equal amount on stock buybacks on an annual basis and still have ample cash flexibility to make strategic acquisitions, ongoing investment in the business through R&D activities, run its normal course of business, and keep an adequate reserve for general business uncertainty.

We believe that a dramatic increase in the forward dividend yield would attract a high degree of interest among large institutional investors such as pension funds who must meet challenging target annual returns for their pensioners. Unlike a special dividend, a commitment to a large forward dividend yield gives Microsoft shareholders a reason to continue holding on to the shares after payout. It also sends a strong message from Microsoft to its shareholders that the company's net profits belong to the shareholders.

We believe that the Company has an enormous strength that is under-appreciated by investors: its enviable cash position, operating cash flow, and access to tap the debt markets. Its market-leading core products and services will continue to provide significant cash to shareholders for many years to come. There are few other potential investments that can compare to Microsoft's cash-generating assets. At the same time, the capital markets are experiencing a high degree of uncertainty at the moment. Many investors will gladly escape that storm to find a welcome port as owner of Microsoft's equity, if the company significantly increases its payout of cash to shareholders through its quarterly dividend and stock buybacks.

The bottom line is that there is unusual uncertainty in the capital markets these days. Investors -- large and small -- are hungry for yield and Microsoft is better positioned to give it to them than any other public company.

When Microsoft started paying a regular dividend, some said that tech companies shouldn't pay dividends. We now know that our technology companies are among the richest and most stable. In many ways, they've supplanted banks as the most trustworthy and safest investment available for "widows and orphans." Returning excess capital to shareholders just makes sense.

Microsoft is better positioned than any other company to pay out a game-changing, large regular dividend. If Microsoft does that, investors will beat a path to the company's door because of the confidence management is displaying in its ability to keep up these payouts in the future, while also carefully reinvesting other excess profits to grow and protect the business.

We'll see in November if other Microsoft shareholders agree with me on this resolution.

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

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