Microsoft's buyback plan shows strength of tech firms
SEATTLE - Chaos in the money markets gave Microsoft Corp. an opening yesterday to disclose it would take on debt for the first time, launch a $40 billion stock buyback plan, and raise its dividend.
The moves indicate that for all the credit problems plaguing the financial sector, cash-laden technology companies with good credit ratings are still borrowing money on favorable terms and otherwise enjoying flexibility.
The largest information technology company, Hewlett-Packard Co., approved an $8 billion buyback plan yesterday. And Intel Corp. chairman Craig Barrett told the Associated Press that the chip maker - which boasted $11.5 billion in cash and $2.1 billion in debt at the end of the last quarter - was feeling no squeeze from the credit crunch.
"I don't see any slowdown in our technology investment or R&D investment or manufacturing investment going forward," he said. "When you've got 10, 15 billion dollars in your bank account, short-term credit is not a significant issue."
Microsoft, which benefits from having $23.7 billion in cash and short-term investments on hand as of June 30, historically has avoided taking on debt to fund day-to-day operations, acquisitions, and stock buybacks, even as many of its peers, including IBM Corp. and Oracle Corp., have done so.
Now, as investors are growing increasingly risk-averse, blue-chip companies like Microsoft are finding interest rates on commercial paper - short-term loans that range from overnight to nine months - hovering around 2 percent. Finally the world's largest software maker decided it was time to borrow.
The company said yesterday its board approved a $2 billion commercial paper program, as part of a bigger $6 billion, open-ended allowance for debt financing. Moody's Investors Service and Standard & Poor's Rating Services both assigned Microsoft's debt their highest ratings.
Microsoft also raised its quarterly dividend to 13 cents from 11 cents, payable Dec. 11 to shareholders of record on Nov. 20.
Investors reacted to that, the buyback, and the debt offering by sending Microsoft's shares up 24 cents to close at $25.40.