Slashdot Mirror
Microsoft To Buy Back $40bn of Its Shares
phantomflanflinger writes "As you may have heard already, Microsoft have announced their intentions to buy back $40 billion in stock from their investors, in the biggest single buy-back plan in business history.
The announcement has given Microsoft shares a small gain but they still stand significantly below their level in January — before Microsoft's unsolicited bid for Yahoo!. The announcement of the plan has also created new speculation about a now-or-never deal with Yahoo!."
You're a car manufacturer. You buy a bunch of cars when they're not very valuable, particularly old used cars on the secondary market. You destroy these cars in mass. This in the long term creates better higher demand (thus price/value) for newly-produced cars in the future, because there are overall fewer cars in circulation, particularly old clunkers that people might otherwise use instead of getting a new car.
It's not always the case that putting more money into your core business gives the best return to your owners (shareholders). There tend to be levels of diminishing returns - the first billion dollars of investment often returns more than the tenth billion dollars of investment does. In particular, this is likely to be true in a business that relies more on IP which is "develop once, sell N times at minimal incremental cost" than, for example, manufacturing where as long as there is persistent unmet demand for the products, investing more in production likely is a good use of cash. Cash is like drinking water -- you need enough, but vast quantities are of minimal additional value and it can become a distraction to figure out how to dispose of it efficiently.
If I were a Microsoft shareholder, I'd much rather see excess cash returned to the owners (shareholders) than invested in unrelated things (like sub-prime mortgages!) in which Microsoft has no need for expertise except to invest their spare cash. In this case, I'd rather diversify my own portfolio through pure plays rather than through muddled investments in what is supposedly a software company but which in fact is more of an investment company. So, I'd like the cash returned to me - the most obvious ways are through dividends or increased stock valuation via buybacks.
Obviously, if the buyback leaves Microsoft cash starved so they later had to borrow money for new development and operations, the buyback would likely (although, not necessarily) have been a Bad Idea. However, if this were to happen, the problem would have been that the board was stupid, not that a buyback authorization was a bad idea since I believe this buyback is at the discretion of the board and they may not buy back a single share.
A buyback can be an effective way to return tax advantaged assets to investors. First, there have been many times when what are now called "qualified dividends" were taxed at ordinary income levels while capital gains were taxed at lower levels - and "tax reform" seems much more likely to repeal preferential tax treatment of "qualified dividends" while retaining some preferential treatment for capital gains than doing the inverse - so it's best to bet on capital gains rather than qualified dividends. Second, dividends are taxed in the year they are paid out - so in order for a long term investor to compound gains, they would have to infuse more outside cash with the "pay dividends" strategy (to cover the taxes paid prematurely on dividends) than to simply "buy and hold" a block of stock for many years and let it increase in value, in part, as a result of buy back rather than dividend payments.
Why is there an "insightful" mod and why isn't it "-1"? If I wanted insight, I wouldn't be reading
Um get your facts straight:
1. It doesn't require anything my 4 year old laptop doesn't have. 2ghz pentium M, 1gig of ram.
2. The bugs are greatly exagerated the only relavent one: slow file operations has been fixed since sp1.
3. Um I've run vista just fine on computers NOT marked as vista capable. And this is the same as #1 so you're just inflating your numbers.
4. Service Packs are always in development. THIS IS A GOOD THING.
5. And yet Windows 7 is still a ways down the road.
6. But the ad campaign proved what it was meant to. The majority of the trash talk about vista is just trash talk.
Extra: Vista has no "DRM crap" it only has support of certain DRM functionalities so that its now POSSIBLE for you to watch DRM protected content.
By any rational, unbiased inspection of the facts, your post is a colossal FUD.
No, spending your capital to buy back stock indicates that you have no ideas for using that capital to build your business, and are instead converting it into value for shareholders (the opposite of diluting your stock by creating new shares).
Essentially, Microsoft is doing what Dell thought Apple should have done ten years ago: shut things down and give the money back to shareholders.
If Microsoft had any implementable ideas, it would be using that $40 billion to make more money, just like Apple has used its capital to rapidly expand its business while earning more cash on hand. Apple isn't buying back its stock because it thinks it can make more for investors building new business than it can by simply giving the money back.
Google's Android Platform Faces Five Tough Obstacles
Please do not tell moderators what to do.
If you disagree with a poster, you should just respond to the post and explain your point of view.
This is a discussion forum, for crying out loud!
No sig for the moment.