Microsoft's Dividend Policy ( Page 2)

Abstract

By early 2004, Microsoft''s cash balance had crossed $50 billion. One persistent investor complaint against Microsoft has been its zero dividend policy. Microsoft has not paid dividends for 17 years. It believes in ploughing money back into its R&D (research and development). In part, due to increasing pressure from shareholders, in 2003 the company declared its first ever dividend for common stock. More recently, Microsoft has announced plans to pay back up to $75 billion of its cash to investors over a period of four years. This includes a one-time special dividend of $30 billion. The case outlines the evolution of Microsoft''s dividend policy and the circumstances leading to the huge dividend payment in July 2004. The case also outlines the possible repercussions of this payment for other tech companies such as Dell, Cisco, and Oracle.

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Background Note

Bill Gates (Gates) founded Microsoft (originally Micro-soft) in 1975 after dropping out of Harvard at the age of 19. Gates teamed up with high school friend Paul Allen (Allen) to sell a version of the programming language BASIC.

While Gates was at Harvard, the pair wrote the language for Altair, the first commercial microcomputer. Microsoft started off by modifying BASIC for other computers. In the mid-1980s, Microsoft introduced Windows, a graphics-based version of MS-DOS that borrowed heavily from rival Apple's Macintosh system. The company went public in 1986, and Gates became the industry's first billionaire a year later. Microsoft introduced Windows NT in 1993 to compete with the UNIX operating system, popular on mainframes and large networks. In the early 1990s, many complained about the unfair advantages Microsoft was reaping as a monopoly.

In 1995, antitrust concerns blocked a $1.5 billion acquisition of personal finance software maker Intuit.In 1998, the US Justice Department, backed by 18 states, filed antitrust charges against the software giant, claiming that it stifled competition in the Internet browser market and limited consumer choice. A federal judge ruled in 2001 that Microsoft had used its monopoly powers to violate antitrust laws. This led to the prospect of two (smaller) Microsofts, a decision against which the company aggressively appealed. A federal appeals court struck down the initial ruling to break up Microsoft. A tentative settlement between the company and the US Justice Department left Microsoft intact but imposed broad restrictions on the company's licensing policies for its operating systems......

More...

Exhibit: I Microsoft Key Numbers

Exhibit: II Microsoft - Dividend History

Exhibit: III Microsoft - Dividend FAQ

Exhibit: IV Microsoft's Biggest Shareholders (Report date as of 6/30/04)

The Road Ahead

Exhibit: V Dividend Yields of Few Technology Companies

Exhibit: VI Microsoft - Timeline of Acquisitions

Exhibit: VII Microsoft - Selected Financials

Exhibit: VIII Microsoft - Income Statement

Exhibit: IX Microsoft - Balance Sheet

Figure (i) Microsoft - Stock Chart (January 2000 - January 2004)

Exhibit: X Dividends Paid By Few Technology Companies (As on August 2004)

Bibliography

        Case Code   FINA011
   Case Length    16 Pages
              Period    1975 - 2004
Organization     Microsoft Corporation
        Pub Date     2004
Teaching Note    Not Available
     Countries    Global
      Industry    Information Technology (IT)

Issues

Microsoft's Dividend Policy

Keywords

Microsoft; IBM (International Business Machines Corporation); Bill Gates; Steve Ballmer; HP (Hewlett-Packard); CISCO (Computer Information System Company); Annual dividend; Stock purchase programme; Dividend reinvestment; Form 1099; Buy back; Bill and Melinda Gates Foundation; US Bancorp asset management; Intel; Dividend policy

Please note:

This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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