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  It's time for Microsoft to grow up

BENJ GALLANDER and BEN STADELMANN

Friday, November 22, 2002

I've got the problems of an adult / On my head and on my shoulders / I'm an adult now
--The Pursuit of Happiness

Bill Gates may have a baby face, but it's high time that he learns to sing this tune. Microsoft (Nasdaq--MSFT) is going through an identity crisis: is it a young, scrappy, high-growth company with the promise to earn fabulous riches in the future (think Nasdaq Composite), or is it a blue chip with a marvellous balance sheet that rakes in the cash and generates fat profits for its shareholders (a la Dow Jones industrial average)?

The nerds at the Redmond, Washington-based software giant love to have it both ways, but it is getting harder and harder to pull off.

While herds of lawyers were busy stalemating the anti-trust busters, the company went about its business to keep margins at a succulent level accompanied by a head-spinning market share. This formula created one of the greatest money-spinners of all time, with a cash horde now sitting at around $40.5 billion (U.S.).

This accumulating stash has fuelled a nascent clamour for a dividend. After all, what else is it needed for? Planned spending of nearly $5 billion this year on research and development can easily be funded by operations that bring in over a billion dollars a month. As for Microsoft's "investments" in other technologies, the record is awful with write-downs due to telecom and cable-related losses amounting to $9 billion.

At the last annual meeting CFO John Connors said no dividend will be issued until the threat of further legal action is extinguished. By that standard, predatory monopolists will be having a skating party in Hades before shareholders see a quarterly cheque. The real problem is that implementing a dividend would be tantamount to admitting that Microsoft is a mature company.

Enough with the yearning for the good old days of limitless horizons! Get over it. Surely an enterprise must continue to adapt to its market, but a slowdown in expansion is nothing to be ashamed of. Instead it is simply the price of success. When market penetration is nearly universal, it is illogical to expect massive growth, unless there are planets circling other stars where the inhabitants are still chained to mainframes.

Come on Bill, time to grow up and pay a dividend. Yes, yes, we know that your 12 percent stake will yield a whopper of a bill from the Internal Revenue Service, but really, paying taxes is part of adulthood. And who knows, after all of the corporate scandals and evaporation of wealth, perhaps this is just the gesture that will convince investors that shareholders can still fairly participate in capitalism's greatest success stories.


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