Why Microsoft Keeps On Buying Investors' Faith

Why Microsoft Keeps On Buying Investors' Faith
In acquiring Skype and Nokia's phone business, Microsoft bought a fighting chance to be a big player in a lucrative part of the technology market (Photograph by Mike Fuentes/Bloomberg)
Photograph by Mike Fuentes/Bloomberg

In a perfect world, every press release would come with its own musical accompaniment. Take, for example, today’s announcement of a $40 billion Microsoft share buyback. It would go great with a sweaty John Hiatt belting out Have a Little Faith in Me.

Microsoft already had a $40 billion share repurchase plan in place and set to expire at the end of September. The board gave the go-ahead for another $40 billion buyback, and then topped off that announcement by raising the company’s dividend 22 percent, to 28¢ per share. “These actions reflect a continued commitment to returning cash to our shareholders,” said Amy Hood, chief financial officer of Microsoft, in a statement.

Well, yes, they do. The actions also reflect a company that wants investors to stick with it during one of the odder chief executive officer transitions in recent memory. Steve Ballmer, Microsoft’s long-running chief, has vowed to retire within the year. But far from being a lame duck, Ballmer has just engineered a massive executive reorganization and the acquisition of Nokia’s phone business while also playing a role in these recent financial machinations. At this rate, the new guy or gal won’t have much of anything left to do.

Microsoft’s shares have been in a coma for more than a decade. As a result, the company has been forced to use dividends and share buybacks as signs of life. This is a luxury that Microsoft can still afford as its Windows, Office, and server-software businesses continue to throw off tons of cash, despite the stalled sales of PCs. Is there reason for investors to have faith in Microsoft moving forward?

Well, the negative scenario has the company tapping an uninspiring CEO and continuing to flail around in mobile while its core businesses slowly—or quickly (gasp!)—erode. This is the destiny that many people in Silicon Valley seem to have already prescribed for Microsoft, and the company has not done a lot lately to make a convincing case to the contrary.

The positive scenario could take a couple of forms. One that people don’t seem to talk an awful lot about is the blissful union of Skype and the Nokia phones. Over the past two years, Microsoft has spent close to $16 billion to acquire a phone network and a phone maker. It basically bought two of Europe’s most interesting technology companies with overseas cash, which could turn out to be quite clever.

Does Microsoft emerge as a telecommunications superpower? The Magic Eight-Ball says: “Probably not.” But the company has certainly given itself a fighting chance to a be a big player in a lucrative part of the technology market. Cue the music.

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