October 2004  Email this  Print this
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INTERVIEW
For Investors, a Big Year-End Bonus
by David Landis Rob Gensler manages T. Rowe Price Global Technology fund. Is it wise for Microsoft to pay out $32 billion to its shareholders? Yes. All companies should pay out as much cash as they can. It promotes discipline. And Microsoft is a capital-light business -- it doesn't need to invest in factories in order to grow.
Will other cash-rich tech companies follow suit? Microsoft is setting a fabulous precedent. Many tech companies, such as Dell and Cisco Systems, generate a tremendous amount of cash. If you look at the whole technology universe, companies are sitting on cash equal to close to 20% of their asset values.
Is Microsoft no longer a growth company? Growth rates slow because of the law of large numbers. It's just a fact of life. The dividend is a sign of maturity. The company will continue to generate an amazing amount of cash, and that's not such a bad problem to have.
What are Microsoft's prospects? I'll give you the bull case and the bear case. The bear case is that Linux [a rival computer operating system] will first kill Sun Microsystems; then it will keep expanding into the server space and, over time, onto the desktop. If Linux makes it onto the desktop, then Microsoft not only stops growing, it starts shrinking.
And the bull case? The bull case is that Longhorn, the newest iteration of Windows XP, which will be out in 2006 or so, will reaccelerate growth. Wrapped into Longhorn will be a lot more functionality that's going to be really hard for Linux to knock off. It could be quite exciting.
Which is more likely? We won't know for years. But Microsoft has a cogent long-term strategy, and it's an amazing long-term thinker. | 
MAGAZINE
