Filling the Microsoft Void

Retiring CFO John Connors is leaving Microsoft with a stellar balance sheet and a fiscally conservative legacy. What kind of challenges will his successor face?

The word on Wall Street is that the surprise retirement of Microsoft chief financial officer John Connors will leave the software giant with some big shoes to fill. Tuesday’s announcement that the 45-year-old Connors, a 16-year Microsoft veteran, will step down as finance chief to join venture capital firm Ignition Partners LLC shocked many observers, including equity analysts who respected Connors for his frank and fiscally conservative style.

“Microsoft has the financial wherewithal to hire good talent, but [losing] Connors will be a negative for the company,” says Jonathan Rudy, a software equity analyst with Standard and Poor’s. To be sure, he adds, “the toughest job the new CFO will have is maintaining John Connors’s standards of conservative financial management and reporting.”

Indeed, Connors will be a tough act to follow. During his five years as finance chief, he restructured Microsoft’s corporate finance department by naming a CFO for each of the company’s seven business units, pushing fiscal responsibility down to the operating level. Sales doubled on his watch, to $37 billion, and cash coffers swelled to $64.4 billion. Connors also oversaw the doubling of the annual dividend payment to $3.5 billion, the payout of a mammoth one-time special dividend of $3 per share — or $32 billion — and the demise of stock-option awards to employees.

And while Microsoft’s strong balance sheet buoyed the stock after Connors’s announcement — the stock price rose 5 cents yesterday — experts say that treasury operations will continue to be a major priority and challenge for the new CFO. For instance, points out software analyst Jamie Friedman of independent research firm Fulcrum Global Partners, the company’s asset portfolio will need rebalancing following the large dividend distribution.

Friedman explains that before the special dividend distribution, Microsoft needed to move assets “to the short-end of the yield curve” to create enough liquidity to make the payout. Those assets and others will need to be reallocated, reckons Friedman, and managing an asset portfolio that size is “complicated.”

Microsoft’s assets now total about $30 billion, and the company generates about $1.5 billion a month in revenues. Rudy doesn’t expect Microsoft to consummate any major merger deals like last year’s rumored $60 billion acquisition of SAP, and since the company has no debt, he expects that treasury operations for the new CFO will stay focused on cash management.

Another issue that will face the new finance chief is helping launch the company’s next-generation operating system, code-named “Longhorn.” The original launch date has already been pushed back several times.

On the employment front, Friedman points out that while many of Microsoft’s rivals have moved jobs overseas, company executives have already discussed expanding the company’s Redmond, Washington, headquarters with the zoning commission. “It’s never been Microsoft’s style to send the bulk of its jobs offshore,” notes Friedman, but the new CFO will have to evaluate the ambitious attempt to hire more employees in Washington.

According to a Microsoft spokesman, the company has not set a timetable for Connors’s departure or for hiring his successor.

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