Microsoft's cash maneuver could prove timely

Redmond reveals plans to boost its dividend and buy back more shares. The move may serve as balm for shareholders who are questioning the Nokia purchase as well as Microsoft's ability to innovate.

Microsoft signage
Microsoft

Microsoft on Tuesday said it will raise its quarterly dividend and authorized a new share repurchase program as it throws investors some cash ahead of its financial analyst meeting on Thursday.

In a statement, Microsoft said it will deliver a quarterly dividend of 28 cents a share, up 5 cents from before. The company also said it has authorized another $40 billion to buy its own shares.

Both moves are ways to return cash to shareholders. Microsoft's timing is nice given that it is going to have to field questions about numerous moving parts at its financial analyst meeting on Thursday. Consider the moving parts:

These moves set Microsoft up strategically, but also limit the next CEO because it wouldn't be easy to move away from making hardware now. The set-up may indicate that Microsoft almost has to name an insider as its next CEO.

Analysts expect Microsoft to drop a few profit margin bombs at its annual powwow. Executives will walk through the financial implications of Microsoft's devices and services strategy. There's no way that Nokia won't hurt profit margins. Barclays analyst Raimo Lenschow said Microsoft's gross margins are likely to fall in the mid-60 percent range with Nokia, down from more than 80 percent four years ago.

Microsoft is also likely to talk about the monetization of its cloud services, notably Office 365.

Lenschow noted that Office 365 could be a software as a service cash cow. Lenschow said:

The transition to SaaS with Office 365 enhances Microsoft's monetization, as customers pay an annual subscription fee of ~$100 (depending on the customer and package) rather than an upfront license fee in the $150 range every 5-8 years.

Other analysts have been questioning Microsoft's device strategy and its financial hit. Wells Fargo analyst Jason Maynard said that Microsoft needs to focus on putting its software anywhere. Maynard said:

We think Microsoft needs a fresh horizontal vision enabling apps/services to be used in both work and consumer scenarios across any device...We think Office should be unleashed and not used to protect Windows.

This story originally appeared at ZDNet's Between the Lines under the headline "Microsoft hands out cash ahead of analyst powwow."

About the author

    Larry Dignan is editor in chief of ZDNet and editorial director of CNET's TechRepublic. He has covered the technology and financial-services industries since 1995.

     

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