Microsoft Might Open Its Wallet

CFO John Connors says the software giant will make an announcement on its cash horde by July.
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The European Union has pushed back the date for final hearings in its long-running antitrust challenge against

Microsoft

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, a legal cloud the software behemoth has used as an excuse for holding on to its enormous cash pile. But in a move long awaited by investors, Microsoft's CFO on Wednesday also committed to revealing plans for that cash stash by mid-July.

"I would commit we would have more to say by the analyst meeting on what we do with cash," said CFO John Connors, referring to Microsoft's annual analyst meeting in July. "It's really clear folks want us to move once we get past some of the significant litigation."

For years now, Microsoft investors have been calling on the world's largest software maker to share more of its cash with shareholders. Microsoft finally responded last year by declaring its first-ever dividend, but it was so small that it was widely viewed as just a token. Meanwhile, the company's cash has only continued to build, surpassing $52 billion in the last fiscal quarter.

Microsoft has cited its legal troubles as the reason preventing it from making a move on the cash. That includes suits from rivals

Sun Microsystems

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and

RealNetworks

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, although the European Union antitrust case is the most important one, Connors said Wednesday.

The European Union has charged that Microsoft abused the dominant position of its operating system to corner the media-player market by embedding its Media Player in Windows. It also has charged that Microsoft failed to disclose information that competitors claim they need to interoperate with Windows servers. Microsoft could face fines of up to 10% of its annual revenue -- which would be almost $4 billion -- and requirements to disclose information and unbundle the Media Player or offer competing players in Windows.

Connors said there is no particular timetable for resolving the EU case and declined to comment on a flurry of recent press reports. On Wednesday, wire services reported that the European Union pushed back the dates for final closed-door hearings in the case to March 15 and March 22 from previously scheduled dates March 3 and March 15.

A settlement may still be possible, Connors indicated. "We are very focused on getting things settled and having a good relationship with the EU," he said.

Ken Broad, a portfolio manager at Transamerica Investment Management, called Connors' commitment to move ahead by July very positive. "Where we stand, it's pretty clear-cut they're egregiously overcapitalized," said Broad, whose firm holds Microsoft shares.

His hope would be for Microsoft to distribute half to two-thirds of its cash in the form of a special dividend and then distribute about 50% of its earnings on an ongoing basis either in the form of a dividend or stock repurchases.

Conceding the latter proposal is controversial, Broad acknowledged he can't think of any tech company that pays such a high dividend. Outside of tech, he points to payroll services company

Paychex

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, which pays an annual dividend of 48 cents and earned 80 cents a share. "That hasn't hindered their growth one bit," he said. (Broad's fund is long Paychex.)

Microsoft could be in the same position, Broad suggested. "They don't have very much in the way of capital requirements so a lot of their earnings are backed up with free cash flow," Broad said. "So they are in the enviable position of being able to pay out a high proportion of their earnings -- i.e. 50% in the form of a dividend -- without hindering their growth one bit."

Shares of Microsoft were recently down 18 cents, or 0.7%, at $26.70.