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Microsoft Raises $3.8B in Bond Sale
pfleming writes "Microsoft quietly, or not so quietly, raised some cheap cash in bond sales yesterday. For a company that already has a huge cash war chest and doesn't carry debt, what is the incentive to sell nearly $4 billion in bonds? From the article: 'Microsoft is sitting on $25 billion in cash, so the company doesn't need the bond proceeds "unless they have something big in mind," says Reena Aggarwal, professor of finance at Georgetown University's McDonough School of Business.'"
Obvious first idea.
The name is bonds... Microsoft Bonds.
http://www.geoffreylandis.com
Where can I buy this bond?
German software company SAP appears to be a possible target.
8 Billion to buy Sun out from under Oracle.
The rest for the antitrust lawsuits.
If I were God, wouldn't I protect my churches from acts of me?
Maybe they want to buy GM?
They are going to clone Jesus
Given ALL the problems we see with corporations that carry debt, why on earth Microsoft would want to piss away a giant cash reserve AND borrow money given an extremely rough competitive landscape seems to be the worst decision made in the history of the company.
This is my sig.
I'd be surprised if the justice dept would allow them to purchase anything substantial with their current market share and prior anti-competetive behaviour.
whatever
i
do
what
i
want
While it may be true that they just want to buy something big (like politicians, judges, executive-branch officers) what if they merely wanted to show that they had X amount in debt for some other reason like taxes or some such thing?
25B? That's a lot of chairs, Steve.
"The difference between genius and stupidity is that genius has it's limits" - Albert Einstein
It may be that they're hedging their bets against a possible dry spell in their business. Better to get the cash now, while their bond rating is good and they can get a low interest rate, than trying to issue bonds when they're not looking so hot.
Of course, they may also be starting their business model conversion, a la Control Data Corporation. The software monopoly may not last forever, after all, and this is a cheap way to hedge their bets.
Lacking <sarcasm> tags,
The Bonds will fund refunds for Vista, and Windows 7 from consumers who want to downgrade to XP, or upgrade to Ubuntu.
They probably see hyperinflation coming, and they want to get into debt and buy something fast.
They're moving off planet to avoid problems with anti-trust regulation. Also, chairs thrown from the moon will have much greater impact on earth based targets.
$25 billion seems like a lot, but it used to be more than that.
The important thing to note here is the trend, not the current value.
Maybe they want to buy Slashdot - but they overestimate the price, I'm sure the owners would let it go for a tenner or two...
Just like MS used to first infringe on other companie's patents, and then buy the whole company if they were sued, they are now planning to buy the EU, just so they don't have to pay the more expensive fine imposed on them there.
Maybe they want to buy a decent OS? And then drop Windows?
L.
No company sits on cash. They don't put it under a mattress. They invest it. If they are making 5% more in investing than the bonds cost, then why not borrow to invest? I've seen other huge companies borrow to invest, and there are whole classes of scam-sounding TV commercials about get rich quick with nothing down that are exactly that.
Other than that, there is no real reason to raise capital, unless they had an accountant that made them bid for cash against the investment opportunity and some $4 billion project decided to just borrow externally rather than get charged against a higher rate for taking internal money. But that's internal mumbo jumbo that just goes back to the initial point above, where it's being borrowed because the cost of bonds is lower than using the warchest. There exists nothing that could tap the entire cash reserve in a reasonably short enough time to justify bonds at this point unless they were buying Bolivia or something.
Learn to love Alaska
Microsoft has a AAA rating. At this point in time, people are desperate for a safe place to park their money. Interest rates are low. Simply by holding onto it in cash now, they're betting they can make back the interest plus some later. And if deflation occurs, woo-hoo!
It'd be foolish not to borrow money given how cheap it is now, and how it's not likely to last at that level.
Your ad here. Ask me how!
Microsoft is becoming a mature company and they are operating like one. The will use this money to repurchase their own stock while it is at a discount. They will then keep the dividends on the stock for the company. This will continue until the stock price gets high again. They will then resell the stock for a profit and resources when they need it.
Yes, I am a trader.
They are going to give me my money back for buying Vista! BRILLIANT!!!
At least, the companies I've all worked for have all done business in this manner:
Have a fairly large cash reserve which is your 'emergency' fund. When you need to aquire a company or other such big ticket item, borrow. Even if you have the cash, investors consider how you are leveraging your credit when looking at whether to buy your stock and being under leveraged is just as bad as being over leveraged (cause you are letting money that could work for you just sit idle, stunting your earnings).
There is a feeling that the credit markets should be recovering, and Microsoft, with a AAA rating, is capitalizing on that by offering a low level of risk, which will entice bond buyers looking to get back in, but who are still wary. Combine that with a low stock price, and it's easy to see that they're going to buy back some of their outstanding equity.
It's not mentioned in the summary, but this is the first debt offering in Microsoft's history.
Perhaps they plan to buy part of the wireless spectrum out from under the noses of google.
Because of the recent changes in antitrust enforcement policy, I don't think they are planning to do too many acquisitions.
Have gnu, will travel.
and raising money via debt is the cheapest way to run a company. every project has a cost of capital usually calculated by the direct monetary cost, estimated returns, etc.
debt with it's low interest rates is the cheapest
retained earnings or cash in the bank is more expensive because investors expect growing earnings
selling stock is the most expensive due to expected returns
a lot of companies like GE have borrowed at short term rates and simply rerolled the debt every time it matured paying low rates. nice until 2008 and GE's rates shot up to almost 10%.
Providing, of course, that the chairs survive re-entry. They would probably need to be encased in some kind of ceramic shell.
The really shocking things isn't so much that the powers that be are corrupt, but how cheaply they sell themselves for. Even Obama. Raised millions from ordinary citizens and still sells out to big business for little more then some spare change.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
The article claims MSFT is sitting on $25 million in cash. This is frankly false. What MSFT is sitting on is $25 million in "Cash and Short Term Savings." In short, a combination of Cash and Stock prices, which are not being adjusted as the companies values go up and down, and do not need to be adjusted to actual street value at the present time. What they do have is $8 billion in cash on hand, down from $12 billion a year prior (as of latest SEC filing in March). If I'd lost 1/3rd of my cash in less than a year, I'd be doing a bond right now as well.
Karma Whoring for Fun and Profit.
They used to sit on mountains of cash until stockholders got pissed about it, so they paid out a lot of the cash as dividends to their investors. That's where it went, AFAIK. It's not like their profits took a hit.
So, who wants to buy Microsoft's debt?
If I could borrow $4B at the rates MSFT is getting I'd run out and get it too. Then they invest the money later (remember they are already investing $25B) and end up with a positive return.
This is just accountants shuffling paper. Nothing to see here.
I'm investing my life savings in Seattle-based office furniture retailers.
Help save the critically endangered Blue Iguana
Mod parent up - unless you hate Jesus.
I can see a few alternatives:
* Advertising
"Windows better than everything..." advertising campaign might be one. Massive consumer bombardment with "Windows 7" ads similar to what they did with Windows 95.
* Hardware
Microsoft might follow Apple and Oracle, and start making their own hardware. Massively parallel chips geared towards both the vector and regular computations would be one idea.
Alternatively, their own servers (totally not their market segment, plus they will aggravate their relationship with Dell and others, so this is less likely.
* M & A... ... I know I'm daydreaming...
Buying Yahoo? Or better yet - Novel? That would be an interesting development. Novel has very little influence compared to their former glory, yet some of their technology (Moonlight?) might be valuable to MS. So instead of discrediting Mono project, MS might simply jump on it and start offering various open source solutions
And the bond sale was a software error.
"Believe me!" -- Donald Trump
That's why part of the money is going to Microsoft DuraChairs!
So strong, even Google won't know what hit them.
It's better to vote for what you want and not get it than to vote for what you don't want and get it.
- E. Debs
Just thinking about it, SAP might be a target. BUT, in light of Oracle's buyout of Sun, I could see them going after several targets. Dell might be a better one to go after.
I prefer the "u" in honour as it seems to be missing these days.
Duke. Nukem. Forever.
Microsoft Bondage.
ELOI, ELOI, LAMA SABACHTHANI!?
The why of this is fairly straightforward from a financial standpoint. Companies can raise money from two sources: Equity and debt. The cost of debt is obvious (the interest rate). The cost of equity is less obvious but very real: Investors demand a particular total rate of return on the money they invest in a stock, either in the form of dividend payments or retained earnings (appreciation in the value of the stock). If the total rate of return from your stock is less than what the market demands (based on its perception of how risky you are), then your stock price will fall until the desired rate of return is met. Typical long-term total return from the stock market is 9-10%, and for a tech company most investors will want more because of the perceived risk.
Anyway, the point is that when interest rates are low, it's a lot cheaper to get money from debt markets than from equity markets. So the smart CFO will borrow money and use it to buy back (and retire) stock. If you're a shareholder you like this in net, because although the company now has debt to pay back (a liability which decreases the value of your shares), the positive impact on value from having fewer shares outstanding outweighs it. The only downside to this strategy is that interest on debt must be paid back on a defined schedule -- bond holders aren't willing to defer their payoff like equity investors are (and consequently bond investors make lower returns on average). GM is an object lesson in getting squeezed this way. Many tech companies avoid long-term debt as a result; they don't like the ongoing obligation. If anything this move by Microsoft signals to the market that they've become a stable business that is confident in its long-term ability to generate cash.
apparently Georgetown Professors haven't been reading any financial news sections for the past year.
They're just going to BUY the US congress outright...
MS is getting ready to fight the supremacy of Linux on the desktop.
Microsoft does not want to spend its cash hoard of $25 billion when the interest rate on bonds is essentially at zero -- relative to inflation.
Maybe they're creating super shielded space chairs.
Or, since the gravity is lower on the moon, they might be building huge chairs that will survive re-entry while still retaining enough mass to be effective kinetic weapons.
I think they're saving up to buy Linux. Oh wait.
Steve Ballmer's pet project: To finally find a truly effective cure for male pattern baldness. (Contrary to popular belief, his highest priority is NOT improving the accuracy of chair-tossing!)
I've abandoned my search for truth; now I'm just looking for some useful delusions.
I don't get stock buybacks? What's the point? I assume it's to reduce the amount of oustanding shares on the market, driving up the price of the stock and increasing the value of remaining shareholders' shares? But, if that's the goal, why not just to a stock merge? That is, I've heard of stock splits, where a company declares that all outstanding shares will be split, like 2 for 1 or 3 for 1. If a company can split their stock, why can't they merge it? So if you had 100 shares before, maybe you have 75 or 50 afterwords?
If I were a shareholder, I'd rather a company use the money as a dividend, instead of using it to buy back the stock.
Apple made Microsoft a present: One iPod for every Microsoft employee. $3.8 bn is the money that Microsoft needs now to fill these iPods with music :-)
They're planning to make an offer to buy Canonical. From what I've seen, they're arrogant enough to try.
Funny may not give karma, but +5 Informative never made anyone snort coffee out their nose.
TAKE OVER THE WORLD!
SJW: Someone who has run out of real oppression, and has to fake it.
Explanation: The Hudsucker Proxy
Sidney J. Mussburger: ...then the company too has a problem. What exactly is the disposition of Waring's stock.
Board Member 8: Well as you know, Hud left no will and had no family; the company bylaws are quite clear in that event. His entire portfolio will be converted into common stock and be sold over the counter as of the first of the fiscal year following his demise.
Sidney J. Mussburger: Meaning?
Board Member 8: Well, meaning simply that Waring stock, and control of the company, will be made available to the public January first.
Sidney J. Mussburger: Do you mean to say any slob in a smelly tee-shirt will be able to buy Hudsucker stock?
Board Member 8: The company bylaws are quite clear.
Board Member 3: My God, you're animals. How can you discuss his stock when the man has just leapt 45 floors?
Board Member 6: 44.
Board Member 7: Not counting the mezzanine.
Sidney J. Mussburger: Quit showboating Addison, the man is gone. The question now is whether we're going to let John Q Public just waltz in here and buy our company.
that's how much its gonna cost to bail out SCO.
Going on means going far
Going far means returning
Golden parachute to monkey boy. I am sure most microsofties think it is worth every penny also.
--- guns don't kill people, people with guns kill people ---
They want to pass the federal government's pass/pass grading system.
Previously: "Linux... Toward the Sunrise..." Now: "Linux... Toward the-- No, now, part of Every Sunrise"
I opt too - they buy Apple unfriendly
Well they're not paying off the national debt...
Right now, it's money for nothing and the stock market is way down. Buy stocks with cheap money, and a year from now the ROI is great.
Unless as is likely the market is way down, then you've just lost a few billion dollars you're paying interest on.
Large companies tend not to gamble like that.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Is Microsoft thinking of getting involved in hardware? -Todd
Omne ignotum pro magnifico.
Correction: they used to sit on mountains of cash while their market price was rising. After they realized they wouldn't reach again their peak prices of 2000, they tried to buy stock to force prices up, but that strategy failed.
After a 50% drop in value over six months they are trying to do something about it again.
You bring up an interesting point regarding advertising. This bond may be enough to get Jerry to sing again.
But isn't it time they stopped pretending they're about creating good technology, and admitted it's really all about the money?
Gates already left with the loot. The company has served its purpose and seems primed to implode, since its model of building and "selling" software was obsoleted at least a decade or two ago and they have proven unable to adapt. They haven't even been able to succeed in their markets without habitual dishonesty, lies, duplicity, and every other kind of skullduggery.
you had me at #!
See Hostile Takeover. Despite the disadvantages, it happens now and then. You are right that it's not *quite* as simple as coming up with an amount of cash equivalent to the current market cap of the company -- (some of) the individual shareholders do need to be bought out, one way or another. But you don't need to buy 100% of the company to achieve your goals (majority stake, or significant voting power) -- witness the brouhaha when Porsche quietly bought up ~30% of VW.
(Yes, I know the comment by the GP about MSFT buying GM was just a joke).
http://cltracker.net -- powerful craigslist multi-city search
Someone there just finished the novel Neuromancer and wants to start an artificial intelligence in space!
I for one welcome our new space AI overlords.
MS is just getting enough cash to run a round of 2 million "Laptop Hunters" commercials.
"We told everybody in the state of New Mexico, you find a laptop for under $2000, you keep it."
Georgia Tech, the leader in Chia(tm) technology.
-1 wrong. Stocks are not a short term investment and never have been.
Any individual buying stock as a short term investment is wrong, and might lose all his money (see the hi-tech bubble). But any corporation buying stock as a short-term investment is committing accounting fraud, and might result in corporate officers being sent to jail.
If you receive a dividend you have to pay income taxes on it. Buybacks increase your percentage ownership in the company, which increases share price (usually), and you only pay capital gains on the increase, and that only happens when you realize the gain. Buybacks are usually good for shareholders.
Microsoft had over 10B shares out a couple years ago and now has about 9B outtanding, if I remember right.
Send lawyers, guns, and money. Dad, get me out of this.
They are going to buy SCO.
Once the IBM lawsuit is over, they'll be getting thaat 4 bilion from the settlement, and they'll also be getting that $650 from every Linux user, so they'll be rolling in cash.
Who would win this election: Andrew Weiner vs Andrew Weiner's weiner.
That's called a "reverse split", and it is done. One reason to do it is to make it easier to manage the paperwork. Another is to raise the price-per-share.
If you have twice the price per share on half as many shares, though, you're not giving your shareholders twice the value. That's especially the case if you have a per-share dividend that does not double during the reverse split. You'd need to double the dividend in a 2:1 reverse split for the shareholder to come out even.
By buying back shares when they are cheap, there are fewer shares not just on paper, but an actual lower percentage of the company is in shareholder hands rather than within the company. That means that in order to buy stock, at least until another issue from the company, one must buy it from the shares that remain in public shareholders' hands. That means that all else being equal, the price of the same number of shares goes up. It also means that the dividends the company might pay (and MS does pay dividends) are only paid on the stocks remaining out in public.
In a low-interest bond sale, they might save a good portion of the interest they'll be paying in dividends they won't be paying to shareholders. They'll also have that many shares they can issue again later to raise funds once the share price recovers from the generally weak economy.
After the economy recovers, MS will be in a stronger position from being able to borrow in a weak economy when many companies couldn't. Their competitors with poorer bond ratings might not get bonds sold right now, and definitely not as cheaply. Once the economy recovers, interest rates will go back up across the board.
It's smart to attain assets when they are cheap. It's also smart to take on your debt when debt is cheap. Right now, MS can take on cheap debt, buy cheap assets, then sell expensive assets to pay back the cheap debt later.
I'm betting we'll see a Microsoft acquisition of a telecoms company, probably the currently, very injured Nortel.
I'm in the telecoms space myself (I won't name which company on here so please don't ask me) and we've seen a lot of push by Microsoft with Office Communicator - which also happens to have been designed with proprietary VoIP codecs that allow Nortel connectivity but lock every other VoIP system provider out.
Cisco is obviously very big in the telecoms space now but from a technology and feature perspective, they are still very much behind some of the "traditional" telecoms companies - so there are a number of potential buyers for Nortel who have a huge amount of experience in the telecoms space.
Microsoft is very much the "new kid on the block" when it comes to telephony so acquiring Nortel would give them a big push in that field.
Gentoo Linux - another day, another USE flag.
Assuming share repurchasing is really the intent here, and that's not a bad guess, let me offer a contrarian view to your rosy perspective to MSFT's move.
By borrowing dollars in the bond market to fund a share buyback, MSFT's board is effectively using borrowed money to place a wager that the market is currently undervaluing MSFT's stock. By choosing to throw their extra cash, along with borrowed dollars, at this share buyback scheme, MSFT is betting that they can predict the future better than the market.
What would be really great is if someone had done a study of the effect of share buybacks undertaken by S&P 500 companies, to test whether they work at all. Oh wait, S&P itself has. If you're a MSFT shareholder, ask yourself whether MSFT should be using their extra cash to pay dividends instead of embarking on harebrained schemes like this. Actually, I take that back -- you'd probably prefer they spend money buying back their own shares and paying bond interest rather than flushing it down the Zune toilet.
http://cltracker.net -- powerful craigslist multi-city search
What exactly is cheap cash? Isn't all cash the same value?
generally cash means some liquid assets. given how good microsoft's credit rating must be, they can probably get more out of their liquid investments than they have to pay in bond payments -- especially in a bond market where a few of the bigger bond issuers are not around anymore leaving the pension plans scrapping for some place to park their money.
Any guest worker system is indistinguishable from indentured servitude.
...don't buy this Bond - I wasted 10 quid on the DVD and it's rubbish!
Gentoo Linux - another day, another USE flag.
I had another idea.
Maybe Microsoft is finally going to buy a vacuum cleaner company, so they can put out a product that doesn't suck.
If I were God, wouldn't I protect my churches from acts of me?
"Microsoft quietly, or not so quietly," This parses to "Microsoft," for me.
That should about cover the cost of fixing the red ring of death.
If you buy back stock, you no longer have to pay dividends to those shareholders. If you merge two shares together, you have to pay double the dividend per share that you did previously.
Stock mergers generally happen when the share price looks like it is going below $1 per share which means it gets de-listed.
They're buying Grand Rapids MI?
http://en.wikipedia.org/wiki/Grand_Rapids,_Michigan#Economy
Economy
Grand Rapids has long been a center for furniture and automobile manufacturing; however, the presence of both industries has declined in the region along with manufacturing in general. American Seating, Steelcase, Haworth and Herman Miller, major manufacturers of office furniture, are based in the Grand Rapids area.
In 1880, Sligh Furniture Company started manufacturing furniture.[8] In 1881, the Furniture Manufacturers Association (FMA) was organized in Grand Rapids, it was apparently the first furniture manufacturing advocacy group in the country.[9] Also Since 1912, Kindel Furniture Company,[10] and since 1922, the Hekman/Woodmark Furniture Company,[11] have been designing and manufacturing traditional American furniture in Grand Rapids. All of these companies are still producing furniture today.
My first Journal Entry ever, in 8 years! http://slashdot.org/journal/365947/aphelion-scifi-fantasy-horror-poetry-webzine
If they knew the company was headed into the bottomless pit of failure, they might figure, "Oh well, lets issue some bonds and get some cash while there's still some mugs around fool enough to buy'em."
They won't have loads of cash sitting around if this really is the year of the Linux desktop... oh no, wait, gnomeshell has put paid to that idea.
Forget what I said.
the company doesn't need the bond proceeds "unless they have something big in mind,"
Microsoft likes to play monopoly. Balmer threw the dice and got the following chance card:"Make general repairs on all your property - for each house pay $25 [25] - for each hotel $100 [100]".
they would literally make you slit your wrists should you ever be matched up against them in a test of financial knowledge. Maybe, just maybe, they know what they're doing more than some random dude Slashdotting from work.
You know what, you are RIGHT. They do make me want to slit somebody's wrists, I mean throat... Wall Street had a bunch of those guys too, and right now its costing me something like $40,000 in additional debt, the devaluation of our national currency, a strong prospect of deflation, and 600,000 lost jobs a month, to start....
This is my sig.
I second the SUN troll. Because MySQL comes along with it among other reasons. However I really have no idea. Just getting it on record in case I am right. :-)
...also a candidate.
Hookers and blackjack.
Mit der Dummheit kämpfen Götter selbst vergebens
I swear i was joking when i told them that they could buy Linux for 30 Billion Dollars!
Now i wish i would have said that they had to pay in pennies
Zune phone simple enough. It looks like they already have the hardware but will need a PR blitz as well as incentives for carriers to sell the phone. http://www.tomsguide.com/us/microsoft-zune-phone-iphone-pre,news-3918.html
Just so you know, big business corporations are run by ordinary people like the old monarchies were run by ordinary people. There is no difference between kings and CEOs, archdukes and VPs, and the boardroom and the royal court, except that passing of the crown isn't automatically done from father to son. The King appoints people, based on connections instead of merit. They all vote themselves raises, work their serfs as hard as they can, and every once in a while a new fiefdom is formed that turns into pretty much the same structure. It's more just than a straight monarchy, but it's really not that different.
I hope that we shall crush in its birth the aristocracy of our monied corporations, which dare already to challenge our government to a trial of strength, and bid defiance to the laws of our country.
-Thomas Jefferson, Bedwetting Liberal
The same thing has been true since the beginning of time. When people pass on wealth to their descendants, you end up with a bunch of rich, clueless, greedy idiots running the show, who never serve but send people to war, who never starve but lobby for the destruction of welfare, and who never work but demand the end of Social Security.
Inevitably, the disparity of wealth and the skewed use of a nations resources to attend to the "needs" of these Hapsburg inbreds leads to a revolution, and then whole process is repeated. Corporations just allow us to pretend there isn't a monarchy. The fact that they are run by people doesn't prove anything.
Now it's a good time do do so while the US$ still has some value.
"Consistency is contrary to nature, contrary to life. The only completely consistent people are the dead." A. Huxley
I love it.
I don't get stock buybacks? If you were a CEO sitting on million of shares of stock and options which would automatically go up in value after a stock buyback, with little or no effort on your behalf required, then I suspect you might actually see the point of a stock buyback. No, it doesn't increase the net worth of the company, but it DOES put money in current shareholders pockets! I agree that stock splits are nonsense; apparently Warren Buffet thinks so too, since Berkshire Hathaway currently sells for $90,000 per share!
I've abandoned my search for truth; now I'm just looking for some useful delusions.
It would kind-of make sense.
Oliver's law of assumed responsibility: If you're seen fixing it, you will be blamed for breaking it.
Microsoft has a five star corporate credit rating. Exxon-Mobil grade corporate credit. Pfizer grade corporate credit.
Microsoft's total debt is 2 billion dollars.
Microsoft holds 24 billion in cash.
Revenues have shrunk to a bare $61.1 billion.
Its profit margin to a modest 26% - but, all in all, it's not a bad showing for a thirty year old industrial in a down market. Microsoft Corporation (MSFT
This is Microsoft's first trip to the bond market.
There is no private corporation on the planet which can borrow money more quickly or more cheaply.
The five year bonds return 2.95%. That is just 1% over good-as-gold US Treasury notes. What's Behind Microsoft's Bond Offering?
There are certainly some interesting possibilities: perhaps a big push to get Win 7 out in time for the Christmas shopping season.
The dual-core Win 7 ATOM netbook with NVIDIA graphics could be crushing for the geek who placed his hopes on Linux and the ARM.
they want to buy the rights to DNF
Meanwhile the artificially depressed (compared to borrowing only savings) interest rates continue the diversion of "stuff" from where it can build infrastructure to make a future profit and into either projects that can't be finished or won't have customers when they're done or immediate consumption. This turns a recession into a depression. It's exactly what happened to create the Great Depression, but the government is doing it more this time around and with no safety net from a gold standard - so the US could end up more like Weimar Germany than the US of the '30s.
[citation needed]. If you ask Milton Friedman he'd say the gold standard caused the Great Depression. Tying peoples' perceptions of worth to the market for chunks of shiny metal is an economically destructive thing to do. Since the Federal Reserve started maintaining a stable currency, we haven't had ANY major depressions (the current one being vastly overrated), nor any sort of inflation worth talking about.
Actually, I've never heard your theory before, so I'll assume you made it up. By the way, selling bonds RAISES cash, so your long ramble isn't even salient, and the GP is dead wrong. If Microsoft was expecting inflation, they'd be getting rid of cash ASAP.
Obscure SNL reference...
That is my first thought. Scary as it may be.
---- Booth was a patriot ----
Buddy, can you spare a dime?
http://rocknerd.co.uk
MS does a lot of money moving for a variety of reasons. Could be there making something big, could be they know something bad is going to happen and the want more money for the fight.
Hell, that could be building a huge solar thermal plant to power the nation.
The Kruger Dunning explains most post on
The US dollar isn't going to hyperinflate because the money supply is being continually destroyed by people not paying their loans back. Think about fractional banking.
Fed waves magic wand, invents $1 and pays to bank
Bank takes $1, lends out $10, $1 for 10 people. The money supply is now $10.
Each of the borrowers goes and buys some junk at the dollar store, then stiffs the bank.
All that's really left, then, is a bunch of junk. See, the thing is, the only way that the money supply stays up is, if people pay the money back to the bank. The fed would reduce the money supply by paying down the bank, but, the borrows reduced the money supply to 0.
Thus, as Ben Bernanke so figured out, the -real- money supply is actually a lot lower than it is despite all government statistics. Once people pay down there debt, or the banks write it off, then, the money supply will go back up, but the banks will pay back the fed, which will destroy the money, and there will be no hyperinflation.
This is my sig.
Microsoft is making a flat-out genius business move:
1)Sell bonds now while people are still scared that the market can go down.
2)Allow inflation to drastically cheapen the bonds when it hits over the next few years.
3)Invest the money from the bonds in R&D, or gold, or something that will have a big return on investment
4)?
5) MEGA-profit.
This is pure investing 101, and anyone dumb enough to buy those bonds should be shot. Now is a terrible to buy bonds.
-
The reference, as performed in a skit by the SNL comedian, may be obscure, but many analysts still think the grading system was not truly necessary.
But, to make it *less* obscure....:
"Financial Economics, 'Saturday Night Live'-style"
http://blog.newsweek.com/blogs/wealthofnations/archive/2009/05/11/financial-economics-saturday-night-live-style.aspx
Previously: "Linux... Toward the Sunrise..." Now: "Linux... Toward the-- No, now, part of Every Sunrise"
and Anticipating Windows 7 may not sell well. They'll need lots of cash to fund another attempt.
In a few years, when the US is at 10% interest rates again, the proceeds from those bonds will be dirt cheap.
When interest rates are really really low, it's really really beneficial to have lots of debt locked in at that rate.
You can almost certainly re-invest it profitably, eventually....
becoz the fed's interest rate will go up high.
Microsoft will make a lot of money by using somebody else's money. Smart
Just putting it somewhere so I can say, "I told you so" :)
They already have Virtual Server, including migrating virtual machines from one host to another.
http://lkml.org/lkml/2005/8/20/95
Rather lame, but I wonder what the EC has hinted to Microsoft about the result of the current suit against them.
Comment removed based on user account deletion
After seeing how well vista sales went I wouldn't be suprised if all 3.8B will be spent on windows 7 marketing. They'll need it.
They'll buy-back microsoft stock.
Parent is correct, it is almost universally agreed by reputable economists that the great depression was caused by DEFLATION and the fed keeping rates too high. (not inflation and cheap money as the poorly informed grandparent claims) Additionally, grandparent made the ridiculous claim that recessions are worsened by wasteful spending when in fact they are the result of underutilization of resources, even wasteful spending helps end them. I guess this is more of a computer nerd than finance nerd site, but really, the guy contradicted very basic economics in several places and got modded +5, thats nuts. :)
That to own your own home free of mortgage and lien is a treasure beyond price. If you can achieve above that an endowment that pays the tax you are ready to begin the next phase of wealth. A debt is a relentless taskmaster: It cares not if you lose your work, your crops, your wife, your car. It does not care if you're injured, disabled or dead. It does not care if the property you mortgaged becomes an unlivable swamp, a pile of ashes, a shamble of earthquake or tornado debris. What it cares about is that on the designated day the payment is due.
Fewer than one first mortgage in 20 is ever paid off in full. All of the rest are refinanced or end on the courthouse steps. Playing the market with money borrowed from your roof is no different than gambling your rent.
What does this have to do with Microsoft borrowing money? I don't know. I think this action is more about Microsoft's execs hoping to convert from the growth model to the utility model of corporate governance. I don't think it will work. People generally expect a utility to have infrastructure that's out of their reach and expensive to replace. Microsoft's stuff doesn't meet either of those criteria. Server 2003 is not functionally equivalent to Hoover dam.
Help stamp out iliturcy.
Google. Apple. Companies that are on the upstroke. Not companies like MSFT that are flat or negative for the last decade.
And next year? Do you see Microsoft doing something differently this year? Are they about to release a wildly successful desktop OS? Is the next version of Office going to convince a billion people who make less than $1000/yr that they absolutely must do without food, housing and medical care to buy it? Do their server offerings look like the sweeping innovation that's going to convert the rest of the server world by storm? Are they alone in that field without competition that's both better and free? Are the people that made the company the nest egg for a generation even still in charge? No?
Then what makes their stock look cheap to you?
Help stamp out iliturcy.
as usual microsoft is late in implementing strategies about new worlds, they are still playing pre 2000 way of thinking financing.
hedge for inflation .
acquisition...
they are not seen the world with internet the most likely scenario for this century is going for hudge deflation , yes prices will fall to zero for most things, but very few people will be able to buy as money gets very rare. creating a massive divide between the have and have not . this scenario is not so different from hyper inflation .
now with the credit rating likely of MS they might want to make a hedge fund out of it and go back and reinvest in bonds clipping carry and hopping for gouverment bail out .
You borrow money when it is cheap, not when you need it.
What about using the war chest to give away Windows7 for a bit? Make sure this time it the new version takes.
because MS's offer to buy Yahoo was not all in cash, part of it was stock.
The AACS key is NOT 0xF606EEFD628B1CA427BEA93A9CA9773F
They have a very good product, which is based on linux with XEN, with a easy to use graphical interface. There is a basic version up for free, with as only limitations, the number of VM's and the amount of memory.
I tried it a time, it looks like a good product to me.
Microsoft is currently working on a $40B stock buy back, having recently completed ANOTHER $40B stock buy back. That's the amusing thing about the people who say that Apple is getting bigger than MS, based purely on cash in hand. Yes, MSFT "only" has $25B cash. That's after buying back $80B of stock.
in most companies , the concept of stock buyback is flimsily misunderstood to say the least: let me go on and explain.
In the fiscal years from 2005 to 2008, MSFT retired about 66 billion dollars in its own stock; at the same time, it issued a bit less than 14 billion in stock. This is probably for the most part the result of the exercise of stock options by the employees. Net result, they retired about 42 bn.in their own equity.
as of end 2008, their return on equity has been about 48%.That comes from dividing about 17 bn net income by their 36bn stockholders equity. Now, if they had let the cash build up, their stockholders equity would have been 78 bn, and their return on equity a more down to earth 22%.
Going back to the stock option plans: if the employees are assigned a significant number of options, say 10% of the issued capital,they can force a massive dilution on other shareholders. a neat 10% stock buyback will set everything right, but on a practical level is the same as paying out 10% of the company to the employees involved.
"If a boss demands loyalty, give him integrity. But if he demands integrity, give him loyalty." (John Boyd, 1927-1997)
I guess, thinking about the issue more, I sort of see your point. If MS did a reverse split, even though the price per share goes up, I as a shareholder make no net gain, because my number of shares which I hold goes down proportionally to the increase in price (presumably - and that may not even be the case, necessarily - perhaps the market decides that 1/2 as many shares is not worth 2x the price).
Whereas with a stock buyback by the company, I do not lose any shares, while the price probably goes up, so I should realize an actual gain in the value of the stock I hold.
They're sitting on $25 billion in cash? OMFG- fix the Xbox's hardware issues! Damn!
If MS were to buy VMware, they'd offer it as a move towards expanding their virtualization services to other OSes - to 'infuse' MS tech into VMware products to make them better. Then, the Windows versions of VMware products would slowly become much, much more "windowsy", while the Linux and Mac versions stagnate in features and usability - while useless or half-broken features are added, making the package as a whole less usable. Eventually, they'll be canceled outright.
The disquieting thing about this theory, the thing that makes it really plausible to me, is that all of the above can happen without cackling evil plotting masterminds at Microsoft. It can happen just in the normal course of how MS does things. Of course they will add new features, of course the new features will be "windowsy", and of course the actual Windows versions will get priority. Just let some time go by, and the results will be indistinguishable from a nefarious plan to sandbag the Linux and Mac versions.
No doubt they will treat a Zune Phone like the original XBox...
http://www.youtube.com/watch?v=WRLRjKCGHek
steveha
lf(1): it's like ls(1) but sorts filenames by extension, tersely
New Chairs.
Then probably an effort to buy
SAP.
My thought is that they use to be sitting on over 40 Billion and now it is at around 25 Billion. The gaming division is bleeding money with no end in sight and while it is true they have gained significant market share with the 360 in North America, it has come at an huge cost (many Billions). If Microsoft wouldn't have bled so much money with the failed Zune, .NET, and gaming disasters then Vista wouldn't have been what it was and Microsoft would be far better off today. Vista would have been written correctly, and Microsoft would probably have well over 40 Billion in the bank. Instead they have a failed mp3 player, a gaming console that had a failure rate over 30% (unthinkable by Nintendo or Sony), and a development platform that is struggling at best. For the life of me I can't figure out how you go from 40 Billion to 25 Billion while having the cash cows of Microsoft Office and Windows WITHOUT having anything serious to show for it. Oh, and they also managed to lay off ~10,000 employees.
Now they want to buy SAP... I feel for you guys working for SAP if you have to go in to that environment. Granted I NEVER thought I would feel sorry for any SAP guys.
The more I learn about science, the more my faith in God increases.