91ÊÓƵ

Dear Mr. Berko: In February 2000, you wrote that I should buy 100 shares of Microsoft, which I did at $112, and a couple of years later, it split 2-for-1. I now have 200 shares, but my cost is $56 a share. And even though sales and income and dividends have done very well, I have a big loss, and the stock has never come back to what I purchased it for. Why has the stock price done so poorly? Is there any hope that I will get even?

F.L.

Fort Walton Beach, Fla.

Ìý

Dear F.L.: Holy succotash and Jumping Jack Flash! You’re the second person in the past month who has accused me of recommending Microsoft in early 2000. On occasion, I’ve been accused by readers of losing it, and on occasion, I probably have lost it (I remember most of the times), but I’m bingo-certain I never recommended Microsoft between 2000 and 2012. However, in the past two dozen months I’ve stated that Microsoft may have appeal for accounts seeking dividend growth and warrant a purchase at the bottom of its annual trading range, between $26 and $28. However, there’s an outside chance that Microsoft will return to your cost basis.

It was said of Andre the Giant, who was 7 feet, 4 inches tall and weighed 500 pounds and won the World Wrestling Federation title belt, that if you smacked him in the big toe with a fungo bat, it would take seven minutes before he would respond to the pain. And so it is with Microsoft (MSFT-$33.64). This company is so huge that it can take a week for a letter mailed from its boardroom to reach the CEO’s office in the same building. Size is wonderful if you’re a wall, a planet or an oil well, but counterproductive if you’re competing in a “Jack be nimble, Jack be quick” world of instant-gratification technology. Monster companies like Microsoft have the technical brains, but can’t innovate or initiate smoothly because every step of the process (development through execution) is like running a footrace barefoot on a track of chunky peanut butter. Microsoft’s stock performance stinks. The bloom is off the rose, and most of us remember the allegory about old roses. Kodak, Burroughs, Polaroid, Xerox and Sperry Rand are examples of once monster-size technology companies – with high price-earnings ratios – that faded from glory because they were too big to succeed, innovate and initiate.

In late 2001, when Microsoft settled its antitrust suit, in which the government proved the company was a monopoly, the Justice Department demanded that the company be divided into two. Well, Microsoft’s lawyers prevailed, and it was thrown out on appeal. The company has tripled in size since, and though Apple may be making more money, Microsoft became involved in more things, such as writing operating systems, designing apps, running cloud-based services, creating hardware and writing software for corporate servers – plus adding an unprofitable online services division. In 2001, Microsoft had a $21 billion cash surplus; today that number is $79 billion. Because Steve Ballmer is going fishing, some big shareholders are suggesting that a new CEO must dismantle Microsoft into five “mini bells.” They believe that this would generate shareholder value and eliminate what Kurt Eichenwald calls Microsoft’s tangled mess of internal conflicts and bureaucratic paralysis.

An AT&T-style divestiture could look like this: 1, business division, with $24 billion in revenues, would run Windows and earn revenues from service support and consulting; 2, desktop applications, with about $19 billion in revenues, would operate PC software and systems, and maintain and improve apps for customers around the world; 3, servers and tools, also with $19 billion in revenues, would service Microsoft’s business customers; 4, entertainment, with $10 billion in revenues, would include Xbox, Skype, Windows Phone, etc.; 5, online services, with $3 billion in revenues, would include Bing, MSN and Expedia.

As stand-alone spinoffs, those five divisions could have a combined market value of $70 to $80 a share. So, the sum of the parts might be worth more than the whole, and you might get even.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 8303, Largo, FL 33775, or email him at [email protected]. © 2013 Creators.com