Microsoft's Money Problem: What to Do With It All

Microsoft has a "problem" other companies could only wish for: what to do with its huge hoard of cash?

And everyone seems to have an answer for spending the $38.7 billion in cash and short-term securities reported on Microsoft's balance sheet on June 30. Consumer advocate Ralph Nader believes the Redmond, Wash.-based behemoth should pay a dividend. Credit Suisse First Boston analysts want the company to buy back more stock. And one investor joked that Microsoft could have helped bail out WorldCom by giving the bankrupt telco a few billion dollars.

Don't look for any of those options from Bill Gates and Co. For one thing, Microsoft's cash balance is not as enormous as it seems by at least one measure. And with big plans to expand into new markets such as entertainment and wireless -- plus the antitrust cases still looming -- Microsoft is more likely to reinvest in itself than declare a dividend or embark on a major acquisition in the near future. Microsoft, stung by bad investments during the Internet boom, is also more cautious now about where it puts its money. ...