Are Microsoft's Investments in Its Future Paying Off?

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Few fields move as rapidly as technology. Businesses creating outsized profits and returns for shareholders quickly get a bull's-eye painted on their back as they become targets of other companies looking to disrupt their products by selling cheaper alternatives that still prove "good enough." Not only that, but even if a company continues to dominate its particular field, other changes in technology can shift spending away from their products. Think about how Microsoft (Nasdaq: MSFT  ) still dominates PCs but feels pressure from the sales shift toward mobile devices such as smartphones and tablets.

With that in mind, today we're looking at how Microsoft innovates. Technology companies can innovate either through acquisitions or by spending more money on research and development. We'll compare Microsoft's spending in these areas with that of its closest peers and assess whether the company is investing enough in its future.

Research and development
Over the past five years, Microsoft has spent an average of 14% of revenues on R&D. The following table summarizes how Microsoft's R&D expenditure relative to revenues compares with some of the company's closest peers.

Company

2006

2007

2008

2009

2010

LTM

Microsoft

15%

14%

14%

15%

14%

13%

Apple

4%

3%

3%

3%

3%

2%

Google

12%

13%

13%

12%

13%

13%

Source: Capital IQ, a division of Standard & Poor's. LTM = last 12 months. Dates above are calendar years; yearly total is for company fiscal years closing in that period.

As you can see, Microsoft significantly outspends its rivals on R&D. But the comparison with Apple isn't completely, well, apples-to-apples. Microsoft makes the vast majority of its revenues on high-margin software, but Apple has significantly more hardware exposure. Differences in the companies' business models should mean Microsoft would have a higher R&D spend as a percentage of sales.

Still, the fact that Apple's R&D spend is only 18% the size of Microsoft's is telling. Although Microsoft has a large R&D wing, projects are often unfocused or difficult to bring to the market, and there are dozens of large-scale research initiatives constantly in progress at the company. That approach hasn't been working. Despite realizing the power of tablets earlier in the decade, the company was never able to introduce its own concept that consumers gravitated toward. The one tablet project that looked to have consumer appeal, the Courier, was squashed before it even saw retail shelves. In contrast, Apple's R&D process has a more laser-like focus on improving existing platforms to address user demands. Any way you slice it, Apple's tighter focus on a few product lines in its research spend has given it the best return on investment in its peer group.

Acquisitions
In technology, some of the best companies have turned growth through acquisitions into an art. IBM has adeptly spun off capital-heavy businesses such as the hard-drive and PC segments, while it focused on acquiring additional services and software expertise that have transformed its business model.

On the opposite end of the spectrum, Hewlett-Packard is often criticized for underinvesting in R&D, to the point that it has to overpay on acquisitions to catch up with its competitors.

Investors should remember, most of all, that companies are valued by the cash flow they can bring in for their shareholders over time. If companies need to continue making purchases in perpetuity to keep growing, that amounts to a reduction in cash flows, and investors should treat acquisition spending as a continuing outflow against cash flow.

Let's look at Microsoft's free cash flow over the past five years against cash spent on acquisitions.

anImage

Source: Capital IQ, a division of Standard & Poor's. Dates above are calendar years; yearly total is for company fiscal years closing in that period.

Although the company is highly acquisitive, Microsoft's cash flows are still robust, even after accounting for acquisitions. More importantly, organic growth is probably very similar to overall growth, since most acquisitions seem to be for companies that sport high price-to-sales multiples and that Microsoft believes will plug technology holes.

Final thoughts
It wouldn't surprise me if the company became significantly more acquisitive moving forward. Although acquisitions that the company managed to close have largely been for companies with technology Microsoft lacked, remember that the company also made an enormous offer for Yahoo! a mere three years ago. Meanwhile, after Microsoft and Nokia tightened their relationship recently, it wouldn't shock me to see industry dynamics shake out in a way that Microsoft could even be interested in Nokia in coming years. If anything, Microsoft's recent $8.5 billion Skype acquisition shows that the company will be willing to spend heavily to catch up in growth markets in the coming years.

That approach might give Microsoft the best shot at staying relevant as computing becomes more mobile, but it could also be a scary thought for value investors looking to cash in on Microsoft's rock-bottom valuation.

To get up-to-date Microsoft news and analysis, add the company to your watchlist

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Source: http://www.fool.com/investing/value/2011/05/28/are-microsofts-investments-in-its-future-paying-of.aspx

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A Further Learning on Learning Financial Statements

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Source: http://www.legaldebthelponline.com/2011/06/11/a-further-learning-on-learning-financial-statements/

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Eagle Ford Shale Better Than Cheney (Almost) For Halliburton Fortunes

We estimate that Halliburton derives 64% of its value from its North America division. Our price estimate of $57.18 for the company's stock is approximately 20% ahead of its current market price.

Source: http://blogs.forbes.com/greatspeculations/2011/06/10/eagle-ford-shale-better-than-cheney-almost-for-halliburton-fortunes/

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REPORT: Anthony Weiner Was Messaging With An Underage Girl


Weiner

Was one of the young women messaging with Anthony Weiner underage?

According to a FoxNews.com article, Delaware police spoke with the mother of a 17-year-old girl about an exchange of messages sent between her daughter and the New York Congressman.

Sources close the student said the girl followed Weiner on Twitter after seeing him speak during a school trip to Washington on April 1. Weiner, after signing on to follow the girl's Twitter feed, direct-messaged the girl on April 13, the sources said, though it is not clear what other communication the two may have had between or after those dates.

The teenager in question told FoxNews.com, "I'm doing okay."

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JENN STERGER: Sexts, Startups, And Single Life


Jenn Sterger

Jenn Sterger's name probably rings a bell. 

She's had quite the year since Deadspin revealed a scandalous secret last October. NFL quarterback Brett Favre was sexting her X-rated photos of himself and and leaving unwelcome voice messages.

The scandal created a ripple effect, both for Sterger and the world. Now MTV runs PSA's discouraging teens from sending naughty phone photos; Anthony Weiner tweets himself in the buff. For Sterger, her career exploded. 

Now she's hosting a number of TV and web episodes; she's even dabbling in the NYC startup scene.

Yesterday we spoke with Sterger. She gave us her honest take on:

  • The Brett Favre scandal
  • Her relationship status
  • Her stint in startups
  • Her advice to Anthony Weiner's sext victims.
  • The secret gig she's been working on

Jenn StergerBusiness Insider (BI): Most people know you from the October Brett Favre scandal, but you actually had an entertainment career before that. What was your first break?

Jenn Sterger (JS): People always call [my career] Pamela Anderson-esque.  I don’t know why? that is, because I don’t have a sex tape.

BI: That’s a good thing.

??JS: I was ?discovered in the stands in a 12 second clip [as a college senior at a Florida State football game in 2005]. Announcer Brett Musberger voiced over and said, "1,500 red-blooded men just decided to apply to Florida State."

That became a viral recruiting video almost. [The press] pulled the pictures ?out of my Facebook and everyone was trying to hunt me down for the? next couple of days. It just kind of snowballed from there.

I shot? Maxim and Playboy within the next month and a half. It was crazy from there on out.??

I wasn’t planning on going the modeling route. But it just kind? of presented itself, and I had always wanted to be in the? entertainment industry. I had never really had any luck with ?auditions or castings. Even meeting agencies they’d be like, “You ?don’t have the right look.”  I would just? be crushed.

So when I got an opportunity I thought, This may be my only shot, I might as well run with it. And? that's where I am now.??

quote jenn sterger

BI: How did you end up working for The Jets?

JS:  I started writing a weekly column for Sports Illustrated and that led me to do a lot of public appearances.   I got ?invited to games at The Meadowlands.  The Jets and ?their fans always enjoyed having me there, so [the team] created a ?role for me. I would come in, entertain fans before? games, and interview celebrities. And that’s how I ended up in New York actually...I'm still living in Brooklyn. 

I was born in Miami, raised in Tampa, and then went to? school in Talahassee.  So I gradually made my way north. I ?came up here for that [Jets] job and, like most women, I came up here for? love as well. I thought it was going to be all “Sex and the City,” ?and it was definitely not.

BI: So you moved for love -- have you found it?

JS: No, I definitely didn't find [love] yet. I'm still looking for it. I think Carrie Bradshaw and those girls are such filthy liars! I am looking for love, just like every girl is up here. Trying to balance that and a career is quite a feat.

quote jenn sterger

BI: There are a lot of girls feeling the way you felt back in October now that the Anthony Weiner situation has come to light. What's your advice to them?

JS: Weiner in general is overplayed, in every sense and phrase of the word. I've been asked about it a couple times, and I really can't comment on how other people handle their situations because every situation, though it may seem similar to the general public, is different.  You can't really advise people on how to handle scandal when it arises. You just have to go with your gut and go with the people who are advising you at the time.??

BI: You waited two years before saying anything about Brett Favre's sexts. Why did you wait so long???

JS: I waited because I didn't have any plans for it to come out in the first place.  It happened two years ago, and I was kinda forced out of hiding regarding the situation. Believe me, if I never had to address it publicly, I'd be much happier.??

Jenn StergerBI: But like you said, everything happens for a reason. You definitely have a lot of opportunities now and I'm sure getting your name out there a little bit helped...

?JS: Yeah, but trust me, there's a difference between good press and bad press. I don't care what people tell you. A lot of it's been making sure people get to know the real me and get to know my side of the story.??

BI: What have you been working on lately?

I am now with Fuel TV and it's been an absolute blast. I shot the Hometown Throwdown with them in March in Wisconsin. Fuel is very focused on action sports like snowboarding skateboarding, and dirt bike riding. My program is about average Joes proving they’re the toughest guys in? town. We’re talking about doughnut makers, peanut farmers, butchers and parole officers.

The second episode airs [tonight]. We’re waiting to hear whether or? not there will be more of them. It’s been very well-received so far.

[As for other projects] I have a couple of NDAs signed. I'll also be be ?working with the website, BroBible. BroBible is a really cool men's lifestyle website. They're doing an entire relaunch this weekend -- a whole new look. My video segment will be part of the relaunch.

quote jenn sterger

JS cont'd: I love BroBible's vibe. I’ve always been one of the guys? and this site kind of allows me to play out that side of my ?personality.  Like most men, I have a great appreciation for female beauty, so the weekly segment I'm doing for them is their "Hotties Index." Each week I'll break down their top five choices of hotties and weigh in on them.

BI: There's a rumor that you've been working with a New York startup, YouAre.TV.

JS: YouAre.tv came about because I was good friends with ?the guys over there. They brought me to the studio a couple of? times because I love doing web casts.  I? told them I’d help them beta test the software.? It’s been a lot of fun. ?I haven’t really signed an agreement with them.  I’m not necessarily ?working with them, it was just a project that I enjoyed working on.??

Jenn StergerBI: Have you known the founders for a while???

JS: Yeah, we’ve been buds for a while.  I meet people all the time through Facebook? and through different connections I have out there. That’s how I met [founder Josh Weinstein].

Josh approached me a while ago and told me about this cool ?project he’d been working on. I told him, “When you guys are ready to launch, I’d love to help you? out." I gave them my feedback as far as how the software was working for me as a host, and noted the things I thought they could improve.

[i would sign on as an actual YouAre.TV host] if I had time. ??It all depends on scheduling.

BI: Where do you want your career to go? TV? Modeling? Writing?

JS: I’m kind of a jack of all trades. Modeling is the lowest? thing on the totem poll.  It’s not something I enjoy doing ?anymore. If it’s for promotional purposes for something I'm ?working on, great. I’m a trooper. I’ll do pretty much anything they? ask me to as far as promotional stuff goes because I like backing the? projects I work on.  I support them. But it’s not the thing I? want to do the most.

Plus whoever heard of a 5”2 model, realistically? I’m more of a flip-flops and? Converse kind of girl.

I’ve been working on a lot of different things in the comedic ?realm - some scripted, some non-scripted. A lot of improv. I'm still figuring this whole entertainment industry. Sports will always be part of what I do, but it's not necessarily my main focus any more.

quote jenn sterger

BI: Sports does seem to be a common thread. Do you play any or just enjoy watching them?

JS: The only sport I'm actually good at is bowling. I think it's because it's played in air conditioning, and I'm such a baby about that because I'm from Florida where it was 90 degrees year round.

Other than that I just love sports. My dad's always been very bitter that he never had a son, so I think he raised me like a boy. I love cars, I love sports, football is my first love, baseball keeps me entertained until football rolls around again, I'm loving the NBA Finals right now, and like most of the country, I've become a Dallas fan.

I don't want to see the Heat win.  I'm a huge fan of the underdog. I'm Tampa sports all around. I love the Bucks, I love the Rays -- those are my go-to teams. If I have to have a basketball team, the Magic are my choice because they're a quick hour-drive away. I've never lost those Tampa Bay sports roots.

BI: How have you been able to come back from scandal and succeed?

JS: I think the thing that I had the most difficulty with in the fall was that I am a really goofy, ridiculous, inappropriate person. Having to be quiet and having to not have a voice killed me.

I enjoy interacting with people on the web and enjoy interacting with "fans" or friends or followers, or whatever you call them. Not being able to do that for six months was brutal. It killed me. That's why I'm so grateful now that my piece is out there. People can google it, listen to it and it lives on on the internet. Hopefully it stays on the internet so I don't have to address it every time I open my mouth to give an interview.??

quote jenn sterger

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How To Make Space For Creativity


Brenda Ueland published the book If You Want to Write in 1938 and in it she wrote, “…the imagination needs moodling—long, inefficient, happy idling, dawdling and puttering. These people who are always briskly doing something and as busy as waltzing mice, they have little, sharp staccato ideas, such as: ‘I see where I can make an annual cut of $3.47 in my meat budget.’ But they have no slow, big ideas.”

I frequently find myself “briskly doing something.” Scrolling through my 15 Tweetdeck columns, cranking out a blog post before others get into the office and my meetings begin, checking email while I’m waiting for my sandwich at lunch, or squeezing in one last conference call on my drive home – this is the substance of many days. I do PR after all.

And we live in a world that places value on busyness. It’s a powerful validate for eager entry-level employees and top CEOs alike. This isn’t going away. When I meet teenagers who send thousands of text messages per month, I see the future of multitasking taking hold. A part of me embraces this because I operate at my most effective when I am busy. So I must be important, right?

That does not have to come at the cost of creativity, which is requisite for any kind of innovation, including even the smallest operational changes that can have enormous impacts. We need to create the space (physical or mental) from which the ideas that roil along the edges can sprout. I’ve never had a great idea while staring at my email.

Following is a short list of some approaches to fostering creativity that have inspired me, including a few others that are working for us here at InkHouse:

  • Encourage differing points of view. Netflix has one of the most interesting company values statements I’ve seen. It is based on “Responsibility and Freedom,” and inspired some of our own InkHouse values. Here is Netflix’s value statement on innovation:

  • Stay open to experiences, approaches and ideas. My brother-in-law is an IP attorney for pharmaceutical companies. I have yet to find an experience that he has not appreciated in a fundamental way, and as a result, I frequently seek out his perspective in times of difficult decisions. When I was in New York with him earlier this week, I was talking about creativity and noted that PR people must maintain a steadfast discipline in our to do lists. I surmised that the best scientists he works with must be extremely detail oriented and disciplined in their work. His answer surprised me. He said that while they are disciplined, the best scientists are the most creative – the ones who look at a process in a new way.
  • Let people collaborate. When we looked for office space a few years ago, Meg and I wanted a workplace where collaboration could thrive, so we focused on an open layout. If you come to our space at the Watch Factory today, you will find people standing up and asking for a collective opinion about a campaign, a pitch, a bylined article, a new company name, etc. This impromptu brainstorming has birthed some of our most successful campaigns.
  • Enable focus. We initially offered work from home Fridays because we wanted to provide a flexible work environment. Over the years, we’ve found that Fridays have become important opportunities for us and our employees to focus on strategy and writing away from the hustle of conference calls and meetings.
  • Create your own mental space. As Ueland pointed out, we need to make space for our minds to wander away from the day-to-day details that comprise much of our lives. Dani Shapiro, one of my favorite authors, recently talked about the tight link between meditation and writing. She described the important connection between the mental practice of being present and its benefits to the writing process, which draws from that similar place of mindful focus. She was talking about creative writing of course, and meditation is not for everyone. Simply sitting quietly and drinking my tea for 10 minutes before I leave for the office, or stepping outside to pick up lunch away from my iPhone often give me brief moments of distance that allow an unprompted and unfiltered idea to jolt through the chaos.

Ueland’s “slow, big ideas” are the substance of our clients’ innovations that inspire us to do what we do. We’re always looking for creative ideas to improve our work at InkHouse, so please add your thoughts to the conversation.

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The Death Of The Phone Number


I hate phone numbers. They’re a relic of an outmoded system that both wireless and wireline carriers use to keep people trapped on their services — a false technological prison built of nothing but laziness and hostility to consumers.

In fact, I can’t think of a single telecom service that is as restrictive as the phone number: email can be accessed from any device, Skype makes apps for nearly every platform, IM works across any number of clients, there are web-based messaging solutions that transcend platforms entirely — the list goes on. We expect modern telecom services to be universal, cheap, and easily-accessible, and those that aren’t tend to be immediate failures. Ask Cisco how Umi went for them sometime.

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The "Robin Hood Of Bangladesh" Was Just Arrested For Robbery


robinhood

A man known as the Robin Hood of Bangladesh was arrested yesterday after a week-long manhunt.

Badiul Haq Nasir, 45, gave thousands of dollars aquired from two decades of crime to orphanages and mosques, police told the BBC.

"The villagers said he was a benevolent man willing to help anyone who needed it," local police chief Babul Akhter said. "They had no idea as to the real source of his wealth."

"Apart from being such a generous philanthropist, Nasir is probably the most efficient burglar in the country.

"He can pick any lock, get into any vault or gold shop by using a screwdriver and wrench."

Yet last week he was caught on video robbing a store in Chittagong.

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