The Future of the Software Industry

madro writes "Remember 'Does IT Matter?' a while ago? Nicholas Carr is back with an editorial in today's New York Times following Microsoft's decision to dramatically reduce its cash stash. Carr's take: Microsoft is admitting it can't find better uses for its cash, due to the growing maturation of the software industry. No mention of open source, although Apple's consumer-targeted model of free iTunes driving iPod demand is one listed alternative." Reader CodeArtisan submits another piece about Microsoft's loot distribution, and Newsforge (which is part of OSDN along with Slashdot) has a story about the future of commodity software.

Comments

I'd agree

[JohnnyComeLately]

In accounting we'd go over cases of corporate buy outs and study guys where the company was diced. The one exception to this rule is Microsoft. Meaning, most companies that slow down in innovation and have a huge hoard of cash get bought by leveraging against their equity. I walk up to Joe Sleez banking and say, "Loan me $4 Billion to buy Microsoft, which has $3.8B in cash, $100M in Accounts Receivable, and misc in other assets. You buy the company and dice it up and sell off the parts. Similar to a car, the parts can be worth more than the car as a whole. Plus, you never leveraged a dime of your own money.

Many firms have poision pills and other defensive postures against this aggressive practice, but I've always been surprised no one has tried to buy and dismantle M$. I was also surprised they never paid a dividend, as its a psychological move for investors. Then again, most people aren't buying M$ for a diversified, low-risk retirement portfoilo.

Coming around to the specific topic of timing, it certainly makes sense that the tax code is encouraging it. If you're netting over 7% leaving it alone, why pull out retained earnings to have a cut taken out of it? When I saw they had cash doing nothing (ok...mortgage backed securities) and were keeping ahead of the risk-free rate (rate of a 10 year bond), it's a no brainer to leave it in Microsoft's bank account. I'd almost say you're better off telling them to dividend re-invest. You avoid the taxable income, increase your holdings, and benefit more from the impending stock buy back.

I really hate M$ for its predatory marketing practices and $hitty products, but from an investing standpoint it's hard to hate them.