Steady Course for Cash, Investments

As part of an effort to explain why it keeps so much cash instead of returning it to shareholders in the form of a larger dividend or stock buyback, Microsoft recently detailed how it manages cash and investments. Chief Financial Officer John Connors deflected rumors about a major dividend increase in the near future and said that Microsoft will keep significant cash on hand until its legal risks (and related business risks) are squarely behind it. Connors also hinted that major strategic investments along the lines of the company’s late 1990s forays into the cable sector are unlikely.

Speaking at the 2003 Financial Analyst Meeting in July, Connors explained that Microsoft had a total of US$62.7 billion in its portfolio at the end of fiscal year 2003 (FY’03) on June 30. The company divides this portfolio into two sections. The vast majority-US$53.5 billion-is what Connors called the “treasury-managed portfolio,” and consists of cash, short-term investments, and equity investments managed solely for financial gain. Microsoft also has US$9.2 billion worth of strategic investments in companies that it believes will help its core business.