The WSJ recently had an article discussing a notion that a number of value investors have been championing for some time now: breaking Microsoft up. Since each of the pieces seem to rely on each other (especially on the PC and mobile operating systems), this would be a very tricky proposition to pull off. Food for thought though…
Gates Should Weigh Microsoft
Breakup
Divisions
Would Aid Value,
Mere-Mortal Managers;
Good Timing for Bloomberg?
June 17, 2006; Page B14Bill Gates is gradually ending his day-to-day involvement with
Microsoft and focusing on charity. Because the move offers a time to
reflect, here is something Mr. Gates should ponder. His reputation as a software
developer is assured. But wouldn’t breaking up his creation be the best way to
secure his legacy?
Sprawling companies are difficult to manage. Microsoft’s
businesses stretch from its ubiquitous Windows software to videogame consoles to
an Internet portal. Moreover, the company seems to have lost its touch. It has
fallen behind Google in Web searching, and its latest operating system is
severely delayed. Microsoft may just be too big for Chief Executive Steve
Ballmer, or indeed anyone, to handle. Mr. Gates’s plans to step back may only
intensify managerial problems.
The company has three distinct businesses. Its operating systems
are growing slowly, but produce tons of cash. Its suite of Office software
products is in a similar position. Meanwhile, Microsoft’s other efforts are
potentially fast growers, yet mostly burn cash. Separating the company into
three businesses, or more, would make them easier for mere mortals to
manage.
Moreover, divvying up the company could help to secure Mr.
Gates’s reputation as a great philanthropist. He already plans to give away
nearly the entirety of his fortune. Breaking up Microsoft should mean he has
more to give away. Value investors think Microsoft allocates the capital
generated by its cash cows poorly. Growth investors think some of the company’s
efforts, like cellphone-software production, are smothered in such a large
organization. Both sets are unhappy, so Microsoft trades at a measly 16 times
next year’s estimated earnings. A breakup could raise this multiple.
Of course, the company is still earning billions of dollars and
has significantly improved operating results. But Mr. Gates was violently
against governmental efforts to break up his company in 2001. He may be less
defensive if he comes to the decision himself, especially once he removes
himself from the daily grind and potentially gains some
objectivity.
And there’s one last appealing point: No one would expect Mr.
Gates to be involved in every offshoot company to the same degree. He can
concentrate his efforts on the parts of the business he likes best. And who
knows, it may even bring out some youthful fire.
Matt – great post!
the image you have in your post is apparently behind a password protected source, which is making an authentication popup appear. You may want to check the URL.
Hope you’re well!
Cheers.
Scott
Matt – great post!
the image you have in your post is apparently behind a password protected source, which is making an authentication popup appear. You may want to check the URL.
Hope you’re well!
Cheers.
Scott
As each day passes there is less and less value in Microsoft. Linux and Apple are catching up. How come you make no mention of quality when addressing value ? Most Microsoft products of such poor quality. There is an entire generation now growing up on Apple. Gates probably saw this and other internal issues and decided to get out while the getting was good. He’s been selling most of his shares in Microsoft since 2003.
As each day passes there is less and less value in Microsoft. Linux and Apple are catching up. How come you make no mention of quality when addressing value ? Most Microsoft products of such poor quality. There is an entire generation now growing up on Apple. Gates probably saw this and other internal issues and decided to get out while the getting was good. He’s been selling most of his shares in Microsoft since 2003.
Thanks Scott. I ended up removing the graph. Sekar, I agree that Microsoft has a huge quality issue. I am a Mac convert and loath to use my Dell. That said, most of corporate America is stuck on Windows (servers, exchange, SQL, etc). Their tech teams are hired/trained to support Microsoft. We will see what happens in the coming year or two with Intel powering the Macs. I personally believe that Microsoft will have a break out year next year. Too many people are down on the company and the stock (general sign of a near bottom). They will be releasing (hopefully) Vista as well the new Office and a variety of server products. I think they will also start making headway in online advertising/search, etc. We will see…
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URL: http://keychainpillcase.abc.pl
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Thanks Scott. I ended up removing the graph. Sekar, I agree that Microsoft has a huge quality issue. I am a Mac convert and loath to use my Dell. That said, most of corporate America is stuck on Windows (servers, exchange, SQL, etc). Their tech teams are hired/trained to support Microsoft. We will see what happens in the coming year or two with Intel powering the Macs. I personally believe that Microsoft will have a break out year next year. Too many people are down on the company and the stock (general sign of a near bottom). They will be releasing (hopefully) Vista as well the new Office and a variety of server products. I think they will also start making headway in online advertising/search, etc. We will see…
—–
PING:
TITLE: keychain pill case
URL: http://keychainpillcase.abc.pl
IP: 207.71.18.26
BLOG NAME: keychain pill case
DATE: 06/24/2006 04:38:45 AM
keychain pill case