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Last Updated: Wednesday, 21 July, 2004, 11:54 GMT 12:54 UK
Microsoft billions find a home
By Tim Fawcett
BBC News Online business reporter

Microsoft co-founder Bill Gates
Bill Gates offering cash handouts instead of seeking big takeovers
Microsoft's massive cash pile of over $56bn (30bn), has left the company with some pleasant choices.

Choices, until its legal uncertainties were cleared up, that would have been more difficult to make.

With some big fines paid and funds ready if future appeals fail, Microsoft seems ready to be generous.

So generous that it is returning more than $75bn in cash to shareholders over the next four years, with $32bn paid as a one-off dividend this December.

Cash rich

We have some of the greatest dollar growth prospects of any company in the world
Steve Ballmer, chief executive Microsoft

Selling software to about 90% of the world's desktop computers will keep the Microsoft bank accounts brimming with cash.

It generated $10.4bn in cash during its 2003 financial year alone and despite slowing growth predictions, sales booked in advance mean it will top that up with about $12bn per year in the near future.

Puffed-up bank accounts helped give the words of Steve Ballmer, its chief executive added gravitas.

"I'm confident we have some of the greatest dollar growth prospects of any company in the world," he said.

Chairman and co-founder Bill Gates is similarly confident, promising investment in innovation that could soon produce its best yet software.

Downside

Some investors had doubts about the dividend plan.

"It's a return of shareholder value, but it's a return to current shareholders, not future shareholders," said Barry Randall, a US technology fund manager at Bancorp Asset Management.

And the bravado, partly fuelled by the strong balance sheet, perhaps distracts from a company that is showing signs of maturing, said experts.

The share price trades at between $24 and $30 - less than half the $60 reached at the end of 1999.

Questions remain whether Microsoft can transform its image as an ageing technology top dog slowly running out of breath after the fast-paced growth seen in past years.

Last year Microsoft decided to start paying a dividend - early signs that corporate confidence had finally overcome the boom and bust rollercoaster ride of the dotcom era.

Microsoft employee stock option plans were shelved last September because of the stagnant share price, replaced by a scheme giving out smaller amounts of stock outright instead.

Greater cost control was called for three weeks ago by chief executive, Steve Ballmer.

"This huge cash position shows the business has matured and they are potentially running out of investment ideas," said John Derrick, director of research at US Global Investors.

Growth plans

The payout could signal a switch from green to amber lights for plans to grow by acquisition.

Merger talks with German software maker, SAP, were called off last year after it was decided a deal would be too complex.

Microsoft's market dominance also means it is hard for it to get regulatory approval for big takeovers in the software world.

No-one is counting Microsoft out, however.

Even after the payback it will still have tens of billions in the bank. And its dominance of the desktop - despite delays in providing new versions of its key Windows software - will keep it ticking over till the next big idea comes along.


SEE ALSO:
Microsoft to pay $32bn dividend
21 Jul 04 |  Business
Microsoft 'to cut costs by $1bn'
07 Jul 04 |  Business
Broad approval for Microsoft fine
25 Mar 04 |  Business


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