Investment banker Goldman Sachs downgraded Microsoft from "buy" to "neutral" and dropped its price target for the stock from $32 to $28, as the firm's analysts believe the software giant will perform a bit poorer than anticipated. The report contains a couple of suggestions on how Microsoft can create more value, with one of the more radical ones being the suggestion to spin off Microsoft's consumer business from the rest of the company:
That leads to what might be the most radical proposal in the report -- the suggestion to "carve out" Microsoft's consumer businesses from the rest of the company. Another excerpt:
A break-up of the consumer businesses could potentially unlock hidden value, or more discipline on cost could turn the businesses into contributors to profitability and shareholder value. For example, the Xbox products could be an appealing stand-alone entity, given the historical success of the Xbox and the products’ brand strength, and the business could show unlocked value with forced cost discipline compared to as a piece of Microsoft. To date the company’s comments suggest that management still sees significant value in combining the consumer and enterprise efforts, but we view a foot in both camps as preventing a successful focus on one strategy, a la Oracle in the enterprise or Apple for consumers.
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Re: Goldman Sachs: Microsoft should spin off Xbox division by Anonymous on Saturday, October 09 2010 @ 18:43:59 CEST
Of course they would suggest this. They would happily offer their services as investment bankers on the proposed deal as well. People need to stop listening to investment bankers (the ones profiting from what they tell you to do) and get with some common sense.
MS was told decades ago they needed more presence in the consumer marketplace, as Apple was heating up at the time and we all see where Apple has taken their consumer presence. The Xbox has done that and has put MS much more in touch with end consumers. It's not perfect, but why on earth would they give up their one truly successful venture into the consumer space just because some idiotic investment banker wants a paycheck? If Goldman wants to make money go take your investment in MS and put it someplace else if you think you can do better. You'll be back. And when you return to buy MS shares they'll cost you double what you left them for.
I don't work for MS but they have done a more than decent job of ROI. These are tough economic times and you aren't going to see 10-20% unless there is huge risk involved. MS doesn't have that same kind of risk. And as the economy improves you'll see MS come back like a lot of others.
Half the companies that "shed" parts of themselves back in the 80's and 90's are finding themselves "bought up" now and getting shredded to bits because they weren't large and strong enough to survive on their own. Moreover that's a big waste of money, which in the end costs everyone more money.
Smaller is not "better" in this day and age. Smaller is "easier prey" for someone who was smart enough to stay big. MS needs to figure out better ways to grow, but also understand that in these economic times ANY growth at all is better than 50% of companies out in the market are managing to do.