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Technology Stocks : How high will Microsoft fly? -- Ignore unavailable to you. Want to Upgrade?

To: Teflon who wrote (28749)	8/27/1999 5:47:00 AM
From: Mick Mørmøny	Respond to of 74651

Analysts Say Microsoft Might Delay Formation of Tracking Stock NEW YORK -(Dow Jones)- If software giant Microsoft Corp. has recruited former Silicon Graphics Inc. Chief Executive Richard Belluzzo to head its Internet operations, then it lessens the odds the software giant will rush to create a "tracking stock" for those properties, analysts said. Belluzzo, who unexpectedly resigned from Silicon Graphics Inc. (SGI) on Monday, reportedly has joined Microsoft, although a Microsoft spokesperson declined to confirm it. Redmond, Wash.-based Microsoft has been considering creating an Internet tracking stock as a way to value its Internet properties, to attract talent and to use as currency for acquisitions. Because the stock market has valued such stocks based on revenue, rather than profit, the tracking stock could absorb large losses without hurting the value of Microsoft's core businesses, said analysts. Compared to valuations of regular Internet companies, Microsoft's Internet-related businesses are hidden in the structure of the parent company, analysts say. Microsoft's Internet properties have been valued at as much as $50 billion. Microsoft's market capitalization is $486 billion. If Belluzzo did join Microsoft, "it removes one of the strong arguments" for the tracking stock - as a tool to recruit a high-level executive, said Rob Enderle, an analyst with market research firm Giga Information Group. The tracking stock would reflect the high value of Microsoft's Internet operations and potential stock options. That's not to say that Microsoft's interest in a tracking stock has completely evaporated, but it may not feel pressured to rush such a decision, said Dwight Davis, a Microsoft analyst with research firm Summit Strategies. A tracking stock could also be delayed because Belluzzo may want to help determine what assets - such as products, services and employees - would be tracked by such a stock, said Warburg Dillon Read LLC analyst Andrew Roskill. Perhaps part of Belluzzo's interest in joining Microsoft was the idea the company might create a tracking stock, Roskill said, noting that would give Belluzzo autonomy since it would publicly measure the performance of his unit. J.P. Morgan Securities analyst William Epifanio said Microsoft's final decision on a tracking stock "really hinges on other issues, besides the company finding a leader for the Internet-related business." Microsoft's Internet-related business was about $725 million of its $19.75 billion in fiscal 1999 revenue, Epifanio estimated. That includes the company's MSN properties such as Internet access and its portal, its commerce software and WebTV hardware, he said. Microsoft officials have expressed diverse opinions about the possibilities of a tracking stock. Microsoft Chairman Bill Gates is said not to favor the idea because of "implementation challenges," Epifanio said. For example, there is the unresolved issue of which Microsoft employees would get options in the Internet tracking stock and how that could affect morale in the company. During Microsoft's analyst meeting last month, Chief Financial Officer Greg Maffei cited several challenges to implementing a tracking stock. These included "the cost in terms of complexity, the cost in terms of managing diverse camps and groups," Maffei said during a presentation. In addition to the effort needed to create a financial reporting structure for its Internet business, that also "creates competitive exposure" by clueing in competitors on financial details about the business, said Giga's Enderle. Nonetheless, there are also compelling reasons for Microsoft to consider a tracking stock. Among those more flexibility in how Microsoft's Internet businesses could partner or invest and more transparency, Maffei said. "It gives them some additional currency for Internet purchases," Epifanio said. While it's easy to say that Microsoft has a lot of cash, the currency of a tracking stock allows Microsoft to acquire other highly valued Internet properties and be less dilutive to earnings, he said. Microsoft also could choose to sell or spin off some operations, such as its Expedia online travel service, experts have said. - By Maria V. Georgianis smartmoney.com