17 January 2003 Software giant Microsoft has said it will pay shareholders dividends for the first time in its history, a move that will put pressure on other technology suppliers to follow suit.
The announcement followed the unveiling of the company’s second quarter results. In the three months to the end of December, revenues rose by a tenth to $8.54 billion (€8.02bn) and net income increased 12% to $2.55 billion (€2.39bn).
Microsoft’s dividend announcement surprised many analysts because the company has repeatedly resisted demands to redistribute some of its $40 billion in cash and other investment assets. Nevertheless, its decision to pay an annual dividend of 16 cents a share will only cost the company about $870 million (€817.1m).
Microsoft chief financial officer John Connors said that the company had decided to pay a dividend for two reasons. First, he cited Microsoft’s continued growth during the downturn in the technology industry.
Second, he claimed that the resolution of the antitrust trial and the conclusion of several other legal cases against the company meant that Microsoft would not have to set aside as much money to cover legal costs in the future.
However, Connors said that Microsoft would still take a $210 million (€197.2m) charge in the second quarter to cover litigation costs, including some high-profile cases brought by consumers in California.
Microsoft’s decision follows a proposal from the US government to abolish taxes on dividends. Although this has yet to receive congressional approval, it is expected to meet little opposition in the Republican-dominated Senate and House of Representatives.
It could also herald a big change in the technology sector’s attitude towards paying dividends. Traditionally, fast-growing technology companies have argued that it is better to reinvest profits into the business to drive growth still faster.
When they have chosen to redistribute cash to shareholders, they have done so using stock buybacks, which is not only tax-efficient, but also helps drive up the value of the remaining shares in circulation.
But the US government’s decision to scrap taxes on dividends has persuaded the technology sector to re-evaluate its position. Oracle CEO Larry Ellison has already said that he is considering starting dividend payments, while a spokesman for network equipment maker Cisco Systems said that “it will continue to evaluate” the situation.