What about the Cash

Investors continue to raise questions about Microsoft’s US$53.5 billion hoard of cash and short-term investments. That balance could continue to grow: In a Feb. 2004 teleconference Microsoft Chief Financial Officer John Connors said he expects continued profit growth through fiscal year 2005 even as revenue growth slows.

Connors told investors to expect returns of 4% to 6% on the cash balance, which actually includes only US$8 billion to US$10 billion in cash and very short-term investments, such as funds in money-market accounts. The remainder is investments in longer-term stocks and bonds, which, according to accounting rules, must be included in short-term investments if the company intends to trade them within 12 months.

Connors repeated the primary reason for sitting on such relatively low-yielding assets rather than returning them to shareholders: lawsuits. In particular, antitrust actions brought by the European Union, and by the state of Massachusetts and Sun Microsystems in the United States, still hang over the company’s head. However, Connors acknowledged that investors couldn’t be expected to wait through the end of the Sun case (which might not conclude until 2006 or 2007) for an answer of what happens to the cash. He noted that “’06, ’07 is a long time to not have an articulated strategy for shareholders in this room.”