Microsoft: Prelude to breakup?

[piratePenguin]

BERKELEY (MarketWatch) -- When I read the news about Microsoft's radical reorganization the first thing that came to mind was that this is a prelude to Microsoft either splitting the company into three separate corporations or perhaps selling off one or two pieces of the company. The new organization looks too much like three separate companies that are designed to all survive alone.

This possibility makes the stock an interesting speculation. Despite good news the stock has shown none of its fabulous growth and pep for which it was famous. Microsoft (MSFT:  news,  chart,     profile) once upon a time could lure top executive and coders with promises of riches with stock options in lieu of high salaries as the stock would double every year or two. That's over.

 Now the company looks dead in the water and many of the most talented Microsoft folks have quit and gone to work for livelier more aggressive companies. I run into these folks constantly and they all bemoan the fact that Microsoft is relatively moribund with the exception of the Xbox team that has attracted the best within the company.

 With $60 billion or so in the coffers Microsoft is essentially sitting on two cash cows - the Windows Operating System and the Office Suite. The Xbox group has the potential to be a cash cow. Cash cows support large corporations and all sorts of initiatives. With Microsoft having two or three it has resulted in a surplus of cash and a company that seems dead in the water insofar as innovation or new products are concerned.

 Too many cash cows makes a lazy company. So it's no surprise that the two cash cows and the one potential cash cow were removed from each other in the reorganization and each given its own President.

 If examined closely these three entities could easily be spun into new companies with their own CEO and stock. Current Microsoft shareholders could be given one share of each for each share of Microsoft stock. Then it's off to the races.

 This concept is nothing new the recent rollout of Freescale out of Motorola   (MOT:  news,  chart,     profile)   is a recent example. HP   (HPQ:  news,  chart,     profile)   has done it, IBM   (IBM:  news,  chart,     profile) has done it. It's do-able. And I think this is exactly what the company is planning although they are not about to admit it, yet.

 And the company is no stranger to the idea. When it was under attack by the Justice Department there was consideration within the company that it would be broken up by the government.

 It had contingency plans if this was going to happen. As a practice run it is believed by some observers, me included, that the unusual rollout of the "HOME" division of Microsoft dubbed simply "Microsoft Home" was a strategy designed to see how hard it would be to spin off a new company. This dry run resulted in all sorts of interesting products that were eventually pulled off the market after the company retreated back to its old self.

 The way I see it, Chief Executive Officer Steve Ballmer has realized that spinning off three companies each with a cash cow to support it is the only way to guarantee success of such a spin-off strategy.

 Here's the way I see it playing out. The Windows part of the company will retain the name Microsoft and sell Windows XP, Vista and anything related to operating systems and OS development. This will be headed by Kevin Johnson after a stint sharing a co-presidency with Jim Allchin who will be quitting the company at the end of 2006.

 The Office suite folks and all the applications will be spun off into a new corporation with a new name that will be one of those creations of a research company. I'll simply call it MS Software Corporation. This will be run by the guy I've always considered the heir apparent to Microsoft, Jeff Raikes, trained from day one to be a CEO someplace.

 The third company which will be the Xbox Corporation will be a stand-alone game and hardware company selling all sorts of hardware and all the games for the Xbox. Its CEO will be the talented Robbie Bach. Since this is not yet a cash cow - and will show losses no matter how you do the books -- it will need a different status. Since it is the most dynamic and exciting of the three new corporations it may be presented to the public as an IPO with the current owners of Microsoft ending up with some sort of preferred stock. There are a lot of ways this can go.

 I have no doubts that this break-up in the cards. It's the timing that may concern investors. It may be one or two years away as the new divisions must first settle in as independent entities.

http://www.marketwatch.com/news/story.asp?guid=%7B4AA02389-CC09-40A2-B9D0-A6E3C27BFC9A%7D&siteid=mktw&dist=

The end could-well be near for this monster.

[worker201]

corporate separation won't necessarily mean that Windows or Office or Xbox is dead, or that market domination is over.  Separating them corporately won't necessarily hurt Office or Windows.  And I think that having somebody take control of the Xbox could be good for it.  Riding their security issues and the Xbox Live module is keeping them for developing as many killer games as the other consoles.  Getting a few more righteous games could make xbox profitable after only a couple months.  Halo can't carry the whole platform.