A breakup of Microsoft into smaller companies could be the best thing for the software giant, its shareholders and consumers. But stock analysts also caution it could do irreparable damage.
"There's a lot of synergy between the operating system and the application side of the company, which currently gives Microsoft a lot of sales leverage," said Paul Dravis, an analyst at Bank of America Montgomery. "If a breakup occurs, that synergy no longer exists. You lose the brand appeal."
But it just might be that brand, or the perception of what that brand carries with it, that is holding the company back, another analyst said.
"When I worked at Microsoft trying to negotiate deals with telecom and cable companies, I found that a lot of companies were reluctant to deal with Microsoft because they don't want that PC-world dominance to happen in the broadband world," said Andrew Roskill, an analyst now working at
Warburg Dillon Read. "It was this fear of the 'Evil Empire' if you will. But, as a separate entity, that fear would go away, making the company look safer and gentler."
The smaller companies that would exist after a break up could also be leaner, more nimble and look more like start-up companies, the kind that are attracting investor capital and workers hungry for stock options.
"Right now, being that Internet startups are all the rage, a lot of people look at Microsoft as lacking entrepreneurial zeal," Roskill said. "Making a separate company of Microsoft's Internet-related software and services would make prospective employees look at it as a more entrepreneurially-driven company."
But deciding to split the company is one thing, and deciding just how to separate the business units is quite another. Investors have a lot at stake in how the pieces are rearranged.
"I'm not of the school that the sum of the parts is greater than the value of the whole in this case," Dravis said. "This isn't like AT&T; or Standard Oil in which cases their break-up increased the value of the what was the whole. They had physical assets.
"In the software business, though, people and intellectual property are key. In the technology sector in general, people are a very precious and scarce resource. When they leave the building in the evening, everyone hopes they return. In a split, it isn't clear who will go where. What is clear is that there will be a lot of departures."
