Steve Ballmer was quoted this week as saying that Microsoft's $34.8B cash position "is a high class problem to have."
How stupid can you be? Really, for a guy this wealthy, having so much power at Microsoft, to say something so inane, makes you wonder why anyone would hold the firm's stock, doesn't it?
Having that much cash means the firm can't find risk-adjusted, profitable ways to spend it. They've run out of ideas that will add to shareholder value. Forget building truly better, more secure operating systems or application software. Or browsers. Instead, Bill and Steve are going windmill-tilting over near Google.
Am I the only one who sees it this way? Hasn't the issue of excess liquidity on balance sheets been resolved decades ago? And especially in this era of incredible liquidity from hedge funds and private equity firms? Excess cash on a firm's balance sheet is of no incremental value. Except to waste it, a la GM and Ford.
"Having" cash is no big deal. Putting it to value-creating work is. That's what Ballmer and Gates haven't done for the last five years.
Microsoft's salad days are over. Period. This type of senseless chest-beating on Ballmer's part, 'we have more cash than you do, and it is not a problem,' is further evidence of their failure to accept reality.
You want to talk about corporate governance? Where's the board of Microsoft on this one? Why haven't they stripped Chairman/Chief Software Architect Bill and CEO Steve of their jobs on behalf of the shareholders who have suffered below-market returns for the past five years? Why haven't they forced the use, or dividending of, the bulk of the $34.8B cash on the firm's balance sheet?
Now, that would take some fortitude. Does the lead outside director of Microsoft have it? The "official" Microsoft website does not reveal who that would be. But here are a few of the "winners" currently on the firm's board: Dina Dublon, former CFO of the mediocre JPMorganChase; Ray Gilmartin, recently deposed...err..retired CEO of Merck; Charles Noski, former Vice-Chairman of AT&T, a firm which self-destructed through incompetent senior executive leadership and mismanagement. I don't think this crew will be challenging Chairman Bill anytime soon about which way to steer the foundering S.S. Microsoft.
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It's a question of what kind of company Microsoft wants to be now. They could (and seem to be leaning toward) be content to be the overwhelmning #1 in a steady if not terribly exciting market space. Much of what they do now is very much commodity-type stuff. But there's good money in being a huge #1 in toasters if it's done right.
Or Microsoft could unleash that 11-figure war chest upon the world and remake itself into a wildly innovative entity, the wildness informed by lessons learned and the stability of a very large enterpirse (and incredibly well-funded, of course). The possibilities of what Microsoft could try to do are mind-boggling. Even if only one of twenty potential mega-projects really bore fruit, the results could be spectacular, in both impact and profitability. Even in the worst case scenario -- nothing of the portfolio of mega-projects pans out -- Microsoft would reclaim the high ground and be seen once again as a leader, instead of being seen as the GM of the Pacific Rim. And the risk of taking risks isn't nearly as big as it first might seem: The money from all those toasters keeps rolling in while other parts of the company are out prospecting for the next world-changing thing.
Obviously, you manage the first kind of company much differently than you manage the second kind. The "toaster shop" is probably a lot less challenging to manage, and results are likely a lot more predictable. Managing the second kind of company takes a totally different skill set, and some nerve -- there will be "bad" quarters, even bad years -- it takes a certain kind of courage and bearing to not panic and pull in the reins and go back to emphasizing the toasters.
I don't know if Microsoft even has the ability and the right talent up top to manage the second kind of company anymore. Perhaps Gates and Ballmer realize this on some level and the "decision" has long since been made.
Yes, you are right. The two kinds of firms require very different objectives and management. My proprietary research has uncovered and quantified the different "rules of the road" for attaining consistently superior total returns for each type. They differe markedly.
I doubt that Gates and Ballmer see themselves as needing to manage like Ruben Mark, the very successful retiring CEO of slow-growth icon Colgate.
However, sadly, I also agree with you that they probably can't recover the "old" Microsoft style and nimbleness, i.e., the second type, and know that to be true.
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