| albionus said: The simple answer is that MS didn't think it was going to turn into a $5 billion pre-emptive strike. They thought originally they would be able to turn a profit by the 3rd or 4th year and that the next Xbox would be profitable within a year. Overall they expected it to not actually cost them any money long term. Then poor sales necessitated early price cuts, then they discovered their contract with Nvidia was poorly worded and was costing them somewhere between $10 and $20 per unit, then non-Halo 1st party games continued to flop, then the bill for launching a super machine 1 year early came due.... In short it simply bled more money than MS imagined. That's not to say that MS didn't plan to stick around and make money in the business, just that it could have easily been a secondary concern. The shareholders would probably have a tough time getting a majority vote to force MS out of video games, but that's not the only way a shareholder revolt can occur. If the major shareholders begin to loudly grumble and raise hell at mettings MS will have to listen eventually, if only to stop the negative press. Major shareholders could also threaten to dump some or all of their shares and buy Apple is another tactic that has been used before. So just because they can't muster a majority doesn't mean they are powerless. I know shareholders were demanding MS diversify back in the 90's. At the time MS was resting on its Windows/Office laurels and doing nothing. However, I don't think losing $5.4 billion over 5 years ($1.4 billion in 2006 alone) is what they had in mind. Admittedly that $5.4 billion is out of the $100 billion MS has had in profit and cash these last 5 years which isn't too much. That being said had MS just invested the $26 billion they spent on Xbox in the stock markets it would have earned them over $32 billion instead of the $21 billion they got. That's how business' gauge business ventures, not just on profits but on whether they made more than they would have from average investements at around 8% a year. Seeing as the 360 is still showing no signs of profitability (per unit profitability is good but I doubt they are close to paying off initial costs and R&D yet and unit profits will disappear if they have to cut the price soon), I think it is fast getting to the point where MS will never be able to earn enough in video games to be overall profitable, assuming they become profitable at some point. MS has a lot of money and the shareholders want it to diversify but that doesn't mean MS couldn't be doing something better with its money or that shareholders are happy with how it is spending the money to diversify. |
The last argument is exactly the problem with the emphasis on short term return from shareholders. Of course MS can invest those money ($21 bln) and increase profit (though most prefer dividends, plus, never assume stock market return). Yeah, there's dissent. That analyst is precisely one of them.
Voting by selling MS stock and buying Apple??? Selling MS, yes, but that doesn't amount to buying APPLE. Those two are completely separate decisions (I guess some funds would rebalance and add to their APPLE holdings... but that's different). I don't know of an example where a shareholder used such a threat and carried it out--illuminate me.
An opinion: if MS isn't gonna buy back shares or issue dividends with its mountain of cash anyway, I'd rather them do something with it, like the XBox, even if it does mean losing money (not forever, of course). In fact the same goes with most companies. For instance, I dislike the Nintendo's growing cash pile. It's what, $7, 8 bln now? They are just collecting interest on that. Earlier this year, many were unhappy that Nintendo didn't use that cash to buy a block of stock from the Japanese gov't (1.2% of stocks, amount to probably about $400 mln). Nintendo's stance is basically "we only make video games, we need the cash to absorb shocks", which, is almost the exact opposite of MS's stance "we need to diversify to absorb shocks".
the Wii is an epidemic.
