Finally, a use for Microsoft's cash hoard!
From the Wall Street Journal (subscription required):
Despite potential bad debt risks, a financing program is a profitable way for Microsoft to deploy some of its cash, analysts say. More importantly, vendor financing could help Microsoft compete with the likes of International Business Machines Corp., which has used financing extensively to sell a broad range of products and services.
"Financing has proved an important tool for IBM," wrote George Gilbert, software analyst at Credit Suisse First Boston, in an August research report. Mr. Gilbert rates Microsoft stock at "outperform" and doesn't own the shares. "With financing [Microsoft] could offer end-to-end solutions through its partners and pioneer a new channel for small and medium enterprises."
Microsoft is entering the financing business at a time when others are exiting from it or have had to take large charges for bad debt expenses. While Microsoft has an enviable balance sheet, it is assuming risks by lending out its money. It has taken steps to mitigate potential liabilities. It has hired a handful of former bankers to run Microsoft Capital under the direction of Chief Financial Officer John Connors, one analyst said. Microsoft will focus on financing software purchases and avoid unrelated markets. It has collaborated with Household International Inc., a large provider of consumer loans and credit cards, to screen applicants, make credit decisions and handle customer billing.
Analysts aren't overly concerned. In addition to more than $50 billion in its treasury, Microsoft generates about $1 billion in free cash flow every month, says Goldman's Mr. Sherlund. "I would not suspect they would have to dip into their existing cash balance" to fund these programs, he says.