Microsoft Corporation (MSFT): Who’s Calling For a Breakup?

Microsoft Corporation (NASDAQ:MSFT) has developed itself into quite a large, diverse company over the last 30 years. The company has made a living in the enterprise behind its server and Windows services, and has maintained its hold in many environments thanks to its Microsoft Office suite of products, which are used in both consumer and corporate environments. But with all of the growth and development of the company, might it be time for it to streamline its operation?

There is one analyst who wrote in a recent research note that it might be time for Microsoft Corporation to consider breaking itself up. Now this is not a new call, by the way – similar calls for breaking up Microsoft grew very loudly about a decade ago due to considerations that because Microsoft was so diverse that it was losing its innovative edge and perhaps needed to focus on what it did best and shut down some of the other pieces. Ten years later, that call is being renewed, and was made public by analyst Rick Shurland of Nomura Securities.

Why does there seem to be a push? There seems to be some waves around activist hedge fund ValueAct, which bought a mammoth $2 billion stake in Microsoft Corporation in April. ValueAct has a reputation for guiding changes with companies, including getting people on the board of directors who would support changing the status quo of the company.

Shurland wrote in his note, “We think there is likely to be a more substantive catalyst for change than we have seen previously in the history of the company. There may be a more receptive group of frustrated shareholders to leverage in an effort to drive greater realization of shareholder value at Microsoft.”

How might this breakup look?

One of the suggestions made was to see Microsoft Corporation focus more on its core of the business model, which for Shurland would mean selling off the Bing search engine and Xbox gaming and home entertainment division. The note also maintains that Microsoft could streamline other divisions, lay off some workers and increase its dividend to 6 percent – which would be the highest among its tech counterparts. Another model suggested breaking the company into two divisions – one is a consumer business that focuses on Office, Windows and Xbox, and the other is a enterprise entity that develops Windows Server, Azure and Sharepoint, among others.

But the call seems to come at a curious time, as Redmond’s stock is up 30 percent this year and is currently trading at its highest level in six years. Al Hilwa of IDC said, “I don’t think breaking them up makes any sense at this point and I am not sure if it ever did. They are probably on the only path available to them.”

Do you think it is time for Microsoft Corporation to streamline its operations? What are your thoughts about the company structure as it is assembled currently? Would you make changes, and if so, what would they be? Give us your feedback in the comments section below.