7th
Should Microsoft reinvest in growth?
Bijan Sabet wrote a thought provoking post this morning in which he encourages Microsoft to *cut* it’s dividend and reinvest more aggressively in R&D and growth initiatives. My colleague Roger Ehrenberg has written about this issue extensively as well in his excellent post in search of corporation 2.0.
While I definitely appreciate Bijan’s contrarian view and the vision espoused in his piece, in practice, I respectfully disagree with Bijan’s conclusions.
MSFT has been a remarkable destroyer of shareholder value for more than a decade - destroying 10s of billions of dollars during that time. Up until late last year when they finally released their first reasonable mobile offering, corrected the ineptitude of Vista with Windows 7, and really pushed the innovation envelope in gaming with Kinect, MSFT had done nothing in over a decade to demonstrate that they can succeed with new organic growth initiatives. With the exception of new life in gaming, MSFT’s monster cash cows remain business developed 20+ years ago (Office and Windows).
At the end of the day, the only reason investors want a company to reinvest cash rather than distribute it to shareholders is because they believe the company can produce a better return on capital than investors can investing in other assets. MSFT has done little to inspire this sort of belief.
MSFT is no longer a growth stock and it should not try to behave like one. With rare exceptions (read Apple), companies of such size and scale almost never push innovation the way much smaller and nimbler companies do. And unfortunately, Steve Balmer is no Steve Jobs so I just don’t see MSFT becoming another exception to this rule.
