Emergic: Rajesh Jain's Blog

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Microsoft’s Payback

July 22nd, 2004 · 2 Comments

I don’t understand the situation regarding Microsoft’s decision to pay back $75 billion to shareholders in a one-time bonus, dividends and stock buybacks. While it will help the stock, what about customers – the source of the funds? Should not Microsoft be actually reducing prices to make its products affordable and margins lower in those sectors where it has a monopoly (Windows and Office)? Why is there no clamour for this? Wall Street is happy, but what about Main Street? How many other companies are generating $1 billion cash a month – and then paying a part of it to shareholders? Should there not be questions about the 80-90% margins? But, Wall Street has a lot more influence than Main Street. So, as we go ga-ga over the payouts, we forget how the money is being generated in the first place. The message to me: buy Microsoft’s stock (cheap!) instead of its products (expensive!)

Microsoft is in a unique position – it has the ability to single-handedly reinvent computing. In the next 6 years, every computer in the world will be replaced/upgraded – and there are 600 million of these. There will be, by Steve Ballmer’s estimates, another 400 million new users. And if we can bring the total cost of ownership of computing lower, we can expect another 500 million users from the emerging markets. Thus, there is an opportunity to sell upto 1.5 billion computing solutions over the next 6 years. Microsoft can make computing affordable, desirable, accessible, manageable, ubiquitous and secure by virtue of its position. That is what will make Main Street happy – and ultimately, that is what will make Wall Street happy.

Tags: Microsoft

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