Microsoft Holding Onto Stockpile—For Now

REDMOND, Wash.—Microsoft made clear on Thursday that it has no intention of distributing any of its $62.7 billion cash-and-investment stockpile to shareholders until the legal risks posed to the company have been removed.

Regarding reports that it was considering giving up to $10 billion of this back to shareholders through a dividend payment, Microsoft Corp. Chief Financial Officer John Connors said the company had declared its first-ever dividend in January and had repurchased $24 billion in stock over the past four years.

“But we still have a number of outstanding legal issues, including from Sun Microsystems, the EU and shareholder class actions, and for us the biggest factor in any such decision is what is the business model risk to unresolved legal matters of significant consequence,” he said.

In an unusual move, Connors detailed exactly how Microsofts cash and reserves are broken down. Its total portfolio of $62.7 billion is made up of a treasury-managed portfolio of $53.5 billion, with the balance held as a strategic portfolio. The majority of the funds, some $42.6 billion, are in short-term investments.

In its treasury portfolio, 70 percent of the money is invested in fixed income, with 10 percent in equity (4 percent in foreign equity and 6 percent domestically) and 20 percent in cash. “The cash is necessary for opportunistic investments or payments we may need to make. In terms of the portfolio management, 75 percent is managed internally, with 25 percent managed externally,” he said.

Regarding the future deployment of cash, Microsoft has three options: dividends, buybacks or a combination of both. “We dont have anything to announce today but until we have the legal risks and uncertainties behind us, we are not going to be making changes of the magnitude you have all been suggesting,” he told the financial analysts and investors present.

Connors also used his talk to announce a number of new CFOs in Redmonds seven core business areas, including Alain Peracca, the CFO for the Client Group, who came from HP; Marc Chardon, who is CFO of the Information Worker business; and Peter Klein, the CFO for the server and tools group.

Looking to fiscal 2004, Connors said the benefit of the shift in the mix toward Windows XP Professional would be less impactful than expected, while the company would also not have the benefit of the transition of users to its licensing 6.0 plan.

Microsoft expects to see positive growth in PC and server units, assuming the global economy remains at current levels. It also anticipates good absolute growth and a margin improvement in its emerging businesses.

Growth per business in the 2004 fiscal year is expected at around 6 percent for the Client, between 9 and 11 percent for the Information Worker business, the server and tools group is expected to grow between 8 and 12 percent, while business solutions is expecting growth of between 24 and 32 percent.

But MSN is expected to fall between 4 percent and 7 percent as people move from narrow band to broadband. Its home and entertainment business is only expected to rise between 1 percent and 2 percent, Connors said.