Microsoft: unusual cash flow problems?

Microsoft is reviewing what to do with its cash pile. Microsoft is considering paying a special dividend of $10 billion, the largest corporate payout on record, to slim down its cash reserves of more than $46 billion. It has also been reviewing other options, including acquisitions - and while there is frequently speculation concerning takeovers, it could be a risky strategy for Microsoft to take. Under pressure from shareholders anxious to extract greater value from the world's best performing major company, Microsoft is reported to be mulling over four options. It is looking at a share buyback, acquisitions, a higher annual dividend or a "special dividend" that could top the $10 billion mark. This could come in a single lump or may be spread over several quarters.

Microsoft shares rallied on world markets on Friday after reports on the possible payout emerged in the French financial daily Les Echos. The company made its first dividend payment earlier this year, encouraged by favorable tax treatment from US president George Bush. Microsoft shares had already been riding high, following a Merrill Lynch analyst arguing that there could be some upside to the company's numbers. Analyst Jason Maynard raised his fiscal 2004 earnings per share estimate to $1.09 from $1.04.

Mr Maynard said he was encouraged by modestly better PC unit numbers and positive feedback on the new server product releases. He also said his $33.3 billion revenue forecast for fiscal 2004 "is achievable and could show some upside in the second half."

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