Microsoft hands out cash ahead of analyst powwow

Microsoft hands out cash ahead of analyst powwow

Summary: Microsoft announced plans to boost its dividend and buy back more shares. The move may serve as balm for shareholders who are questioning the Nokia purchase as well as Microsoft's ability to innovate.


Microsoft on Tuesday said it will raise its quarterly dividend and authorized a new share repurchase program as it throws investors some cash ahead of its financial analyst meeting on Thursday.

In a statement, Microsoft said it will deliver a quarterly dividend of 28 cents a share, up 5 cents from before. The company also said it has authorized another $40 billion to buy its own shares.

Nokia means lower Microsoft profit margins.

Both moves are ways to return cash to shareholders. Microsoft's timing is nice given that it is going to have to field questions about numerous moving parts at its financial analyst meeting on Thursday. Consider the moving parts:

These moves set Microsoft up strategically, but also limit the next CEO because it wouldn't be easy to move away from making hardware now. The set-up may indicate that Microsoft almost has to name an insider as its next CEO.

Analysts expect Microsoft to drop a few profit margin bombs at its annual powwow. Executives will walk through the financial implications of Microsoft's devices and services strategy. There's no way that Nokia won't hurt profit margins. Barclays analyst Raimo Lenschow said Microsoft's gross margins are likely to fall in the mid-60 percent range with Nokia, down from more than 80 percent four years ago.

Microsoft is also likely to talk about the monetization of its cloud services, notably Office 365.

Lenschow noted that Office 365 could be a software as a service cash cow. Lenschow said:

The transition to SaaS with Office 365 enhances Microsoft’s monetization, as customers pay an annual subscription fee of ~$100 (depending on the customer and package) rather than an upfront license fee in the $150 range every 5-8 years.

Other analysts have been questioning Microsoft's device strategy and its financial hit. Wells Fargo analyst Jason Maynard said that Microsoft needs to focus on putting its software anywhere. Maynard said:

We think Microsoft needs a fresh horizontal vision enabling apps/services to be used in both work and consumer scenarios across any device...We think Office should be unleashed and not used to protect Windows.

Topics: Enterprise Software, Cloud, Microsoft

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  • When you don't have anything else....

    ...dazzle them with $$$.
    • Seems that's what Apple's doing, too

      So maybe you're onto something
      William Farrel
      • But then again, this is a Wells Fargo analyst

        so I wouldn't read too much into it.
        William Farrel
  • A company is like a body ...

    "We think Microsoft needs a fresh horizontal vision enabling apps/services to be used in both work and consumer scenarios across any device...We think Office should be unleashed and not used to protect Windows."

    A company is like a body, and a body cannot have its members doing things which undermines the rest of the body. What is the point of selling Office on iOS and Android tablets if this undermines Windows sales? MS products cannot be sold unchecked if they are going to have an overall negative impact on the company. What if the ABC TV network sold lots of ads to its competitor's shows, and this led to an overall fall in ABC viewership? How many people do you think would consider selling ads indiscriminately by ABC a great idea?
    P. Douglas
    • Big 'if'

      What if MS could make more money off selling Office for Windows, iOS, and Android than for Windows alone?

      For that matter, what if you have someone who is sitting on the fence for office suites, but iPhone compatibility is the big condition? Money is money, and the iPhone-clad hipster's cash is just as legal as the Windows user's.

      For that matter, Windows Phone is not the dominant player. The die-hards may be swayed by making Office WP8-exclusive, but if people just need to do basic text editing, there are countless other products that do it cheaper.

      tl;dr Microsoft will need to be pragmatic if they hope to get a significant Office presence in mobile.
      Third of Five
    • An Amazing Business Mind

      Advertising. Pshaw. (And I've heard advertisement for other networks and affiliates on CBS owned and operated radio stations, so, there they will take the money rather than protecting the other division.)

      Universal is related to NBC. Would Universal hold its best television idea for NBC's exclusive use or sell it to the network (ABC-Disney, WB-Warners, CBS-Viacom) that will pay the best license fee?

      There's IMDB. One can check how frequently one studio sells to another studio's network. In fact, there have been law suits from rights holders saying sale, say in syndication, from one division to another in the same studio is a way to cheat them.

      Let's get to cases. The Microsoft Unit that put Office on Mac has always made a handsome profit. It'd make more if Macs were more popular. Does the revenue per cpu exceed Windows plus Word? Don't know, but looking at the retail price and figuring that Windows license revenue is mostly from the discounted OEM rate, I'd say the MBU's numbers are under, but not that much on a percentage basis.

      Let's look at history. Did lack of Office effectively slow down the adoption of a any mobile devices? Nope. So what are you, in fact, protecting? There are customers who daily are learning to not care about Office on their mobile devices. That is money left on the table now and people who don't give a hoot about the brand in the future. The only reasonable complications are the cut the platform app store owners take and their rules regarding free updates. As to the former, show biz types are always posing this question to the recalcitrant. "Do you want 70% of something or a 100% of nothing?"

      Now the case for putting Office on others' mobile platforms must not be a slam dunk, otherwise they would have done so.

      I say Microsoft has this key problem: the main selling point for iPads and Android devices is that they are not pcs, but can still do the things you want. Microsoft, albeit based on one ad I saw yesterday, is saying for less cost one can get something that is more pc-like than the iPad. This message will appeal to some, and I daresay there's a good business in those numbers, but, mobile would not see the numbers it has unless the pc over served the needs of vast numbers of folks.
  • Correction

    I said the following in my comment above:

    "Remember also, a copy of Office on Windows will generate much more income than a copy of Windows on iOS and Android where apps are cheap. "

    Sorry, I meant to say the following:

    "Remember also, a copy of Office on Windows will generate much more income than a copy of Office on iOS and Android where apps are cheap. "
    P. Douglas
  • A stock for every portfolio

    Most analysts tend to favor growth stocks, because that's what the people who buy analyst services are interested in.

    But people nearing retirement -- like for instance the entire baby boom generation -- want big successful companies that aren't growing very fast and are therefore throwing off lots of cash. A company that buys back its own shares and pays big dividends are just what retirees need in their portfolio.

    Way back when, General Motors and AT&T were called "widows and orphan" stocks. Microsoft and Apple have been around for 30 years now. It was stunning that Apple achieved the burst of growth it did at such an advanced age, but is another one likely? No. Both companies are widows-and-orphan stocks now. HP, too.
    Robert Hahn
  • There's a slight difference...

    ...between "receiving money" and "receiving payola". If Microsoft was cranking out killer products, wouldn't people be snapping up the stock without Microsoft having to provide these "enticements"?
  • Wow

    Company announces 22% increase in dividend, plus increased stock buyback of 15% of market cap. Stock goes up only 0.6%.
  • Goodbye To Those Legendary Cash Reserves

    Propping up massive boondoggles like Windows Phone, Windows RT and XBox, paying off disgruntled shareholders, holding back Office from competing on growing platforms just to avoid making Windows look bad ... before you know it, all that spare cash is gone, and Microsoft ends up looking like HP is now.

    The MBA textbooks are full of examples like this. Kudos to Microsoft for providing a more up-to-date one, I guess.