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Why does the answer have to be invest in tech? Microsoft throws off something like $14B in free cash flow. They could use their toll booth-like cash flow to ac
by jakarta 17y ago
Why does the answer have to be invest in tech?
Microsoft throws off something like $14B in free cash flow. They could use their toll booth-like cash flow to acquire good businesses that offer nice, steady returns, in areas outside of tech. There is some logic in the conglomerate model after all. Go buy a big insurance company.
- netcan 17y agoThat then begs the question, 'Why should they do it?' If you want shares in a holding company, you buy Berkshire Hathoway shares or something similar. You want Buffet on that job, not Ballmer. MSFT should (and do) give this money back to shareholders to invest in 'businesses that offer nice, steady returns, in areas outside of tech' themselves. They don't need Microsoft for that.
- jakarta 17y agoYeah, if you want to put MSFT into runoff, then this would be the appropriate approach. But, if shareholders would rather MSFT survive, they should look into hiring a savvy CIO to handle that end of the business. Either can work, it just depends.
- netcan 17y agoor they could just keep doing software, the business that makes them huge profits.
- marshallp 17y agoBuying stable businesses would signal to the market they don't intend to innovate and so it's overinflated stock price would plummet.
- jakarta 17y agoBut Microsoft's not really trading at an inflated price. On an EV/EBITDA basis the company is around 10x. Conversely, Apple is around 15x and Google is about 16x. Both multiples imply some pretty rich growth prospects whereas MSFT's 10x does not.
- sahaj 17y agoi'd say that it's 10x because the future does not look very promising for MSFT. their margins are going to take a hit when businesses start to Go Google, consumers start buying home computers with ChromeOS/MacOS, and WinMo gets completely driven out of the market by Android. also, It’s not a failure when something like Orkut doesn’t take off: it’s a successful risk assessment. i can't understand why folks think Orkut is not doing well. i'm Punjabi and nearly everyone who is my age group, that i know in India, has an Orkut account.
- sman 17y agoThe new IBM follows the business model you just mentioned though they do not venture outside technology. They no longer invest in building anything ground up. They buy a reasonably successful technologies ( Lotus, Rational, etc) and use an army of salespeople to upsell the new technologies. http://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_IBM#Acquisitions_since_1999 http://en.wikipedia.org/wiki/List_of_mergers_and_acquisition... The reason IBM does not get outside the technology sector is because the profit margins are one of the highest when it comes to software. They have sold most of their non-software business's in recent years: They dumped the loss making Thinkpad for a hefty sum to Lenovo, got rid of most of their semiconductor business and are a software sales company today. I guess the same reason will apply to MS for not getting into any non technology sector.
- jakarta 17y agoThe trick though is paying the right price for acquisitions. Studies have shown that acquirers tend to overpay on acquisitions, so it is important to have someone in place that has the discipline necessary. IBM might have someone like that in place, but I'd imagine Microsoft does not.