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The Microsoft water cooler at the Mini-Microsoft blog is rife with rumors of impending layoffs scheduled for January 15, 2009:
Rumors. Microsoft layoff and cut-backs and Reduction In Force rumors. That’s all I have for you. Rumors and second-hand speculation and the comments left by the fine, good-looking folks who participate in the conversation here. So pour yourself some holiday cheer and dive in.
What have those fine folks been sharing over the past couple of posts here? Bad news on the rise and with perhaps January 15th 2009 as an interesting day for Microsoft news. Bad news. 15 Jan is a week before FY09Q2 quarterly results and it’s better to share as much news, good and bad, before the results are released vs. surprising Wall Street (something I think we’ve learned).
It all starts with…
Just heard on the finance grapevine. MSFT layoffs are coming on January 15th.
They are substantial.
Hit the link for much more, but the possibility of layoffs during the current recession shouldn’t be a shocker even at Microsoft. That’s what companies do during recessions, albeit fairly ham handedly at large companies and that’s what Microsoft is these days. As for Microsoft’s overall business, the outlook isn’t particularly grim although being characterized as a "utility stock" must gall Steve Ballmer:
THE MARKET FOR PERSONAL COMPUTERS IN 2009 WILL be much worse than anyone would have expected just a short while back. But that shouldn’t faze Microsoft (ticker: MSFT).
Shares of the world’s largest software company have fallen 46% this year, worse than the 40% drop in the Standard & Poor’s 500 Index, as investors worry about slipping PC sales.
The result: Microsoft has become a substantial value investment.
With a 2.7% dividend yield and a vast commitment to buying back shares, Microsoft stock is no longer a bet on the PC. More and more, it looks like the stable utility stock of the digital age.
Indeed, the Redmond, Wash.-based giant’s dividend has a better yield than the 10-year Treasury note’s 2.1%. And the company is not likely to disappear from the planet anytime soon.
As long as PCs are sold, in whatever volume, Microsoft continues to be a tax, so-to-speak, on those PCs purchases.
More specifically:
True, the global economic slump continues to humble estimates for how many machines will be sold. But even a worst-case scenario — one in which sales of Windows and other products, such as the Exchange e-mail server, were to decline 10% in 2009 — would probably still generate earnings of $1.90 per share in the 12 months ending in December of 2009, compared with perhaps $1.91 for this calendar year, estimates Cowen’s Pritchard.
That’s analyst Walter Pritchard with Cowen & Co. and whether or not you agree with his exact estimate, Microsoft is not going to be applying for a Washington "bailout" any time soon.
Microsoft has decided to use the war chest it did not get to use to purchase Yahoo to sweeten up the shareholders with a share buyback and an increased dividend:
Microsoft Corp. today announced that its board of directors approved a new share repurchase program authorizing up to an additional $40 billion in share repurchases with an expiration of September 30, 2013.
The board of directors also declared a quarterly dividend of $0.13 per share, reflecting a two cent or 18 percent increase over the previous quarter’s dividend. The dividend is payable December 11, 2008 to shareholders of record on November 20, 2008. The ex-dividend date will be November 18, 2008.
In addition, the company stated that it has completed its previous $40 billion stock repurchase program. Microsoft has returned over $115 billion to shareholders through a combination of share repurchases and dividends over the last five years.
A share buyback is useful tool for mature, cash rich companies like Microsoft to reward shareholders, particularly in times of depressed stock prices, plus it directly increases earnings per share. The share price was up 5% after the announcement.
Microsoft also announced that its board of directors has authorized debt financings of up to $6 billion and has established a $2 billion commercial paper program. Not unexpectedly,"the commercial paper is rated A-1+ by Standard & Poor’s and P-1 by Moody’s, the highest ratings available from both agencies."
The deal that would not die is back for another episode and terrifying Microsoft shareholders everywhere. This time the story is that Microsoft Seeks Partners For a New Run at Yahoo:
Microsoft Corp., positioning itself for a new run for Yahoo Inc.’s search business, has approached other media companies in recent days about joining it in a deal that would effectively lead to Yahoo’s breakup, say people familiar with the discussions.
Microsoft has held discussions with Time Warner Inc. and News Corp., among others, say people involved in the talks. In the past, Microsoft has floated an arrangement under which it would acquire Yahoo’s search business and another partner, such as News Corp.’s MySpace or Time Warner’s AOL, would combine forces with what remained of Yahoo.
This effort does not seem to have been too successful as yet since Microsoft is said to have canceled a meeting with Yahoo Chairman Roy Bostock presumably because they had not yet found a buddy. The takeaway, however, is that Steve Ballmer apparently just won’t give up on a Yahoo search deal. When will the shareholders do themselves a favor and stage an intervention?
MSFTextrememakeover is shutting down his always interesting blog and by way of a farewell present provides a lengthy valedictory post about all the things that are wrong with Microsoft from a shareholder’s perspective – Eight Years of Wrongness:
For example, I bought my first MSFT shares back in the early 90′s. Like most holders that decade, I did very well. Then came this one, which has been an absolute disaster.
It’s sobering to realize that during Ballmer’s term as CEO, MSFT has underperformed almost all of its top tech peers (including AAPL, IBM, HPQ, SAP, INTC, CSCO, SYMC, NOK, ORCL, ADBE, RIMM, QCOM, Ebay, and AMZN), and badly lagged the major averages. We may even see our third plunge to test the 2000 lows during his watch. Unbelievable. There may be another major technology CEO with an equivalent or worse track record who is still in power, but a name doesn’t come readily to mind. Indeed, it’s instructive to note the four companies who didn’t make my list above: DELL, YHOO, Sony and Sun. In other words, four well-publicized flameouts/turnaround stories (depending on your perspective), all of which have new CEOs. Go figure.
…So it’s time for me to listen to the fat lady who has been singing for years now, and finally pull the plug. I can’t keep waiting another 11 years for MSFT’s leadership to deliver the returns that say AAPL’s have in just the past 12 months …
What follows is a lengthy dissection of Microsoft’s business which may be briefly summarized as Microsoft has become a bloated bureaucracy throwing money and people at "big bets" that aren’t paying off while mishandling the cash cows that are financing the party. I highly recommend you read his assessment and I agree with it, although I am somewhat more sanguine about the cash cows and would observe that Microsoft has had one sterling success in the last eight years – the server operating systems and server software which started to gain real momentum circa Windows 2000. Who knew there were high margin, low capital outlay profits in the software business?
Less cynically, Microsoft is suffering from the malaise that commonly afflicts successful companies. When they are young and hungry they conquer a market or several related ones which makes slower growth inevitable accompanied by a "middle age spread" of bloated headcounts and bureaucracy. However, management still yearns for the glory of the company’s lost youth and goes through a "midlife crisis" of mostly outlandish gyrations until a transition to maturity finally occurs, hopefully without lasting damage. Microsoft’s particular problem is that their core business is so incredibly profitable that management can indulge the midlife crisis on an unprecedented scale.
