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Liddell Unlikely to Make Big Difference at Microsoft: Analysts

By Simon Louisson of NZPA

Wednesday 27th April 2005

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However, the affable, kiwi high flier may have better prospects of rousing Microsoft's share price than he had in the downwardly mobile forest products industry, they said.

Yesterday, Microsoft announced Liddell's appointment to one of the highest profile corporate positions achieved by a kiwi -- chief financial officer (CFO) of the world's third largest company.

Liddell, 47, admitted his new job would involve trying to rekindle Microsoft's share price that has been mired for five years since the bubble burst.

"The last five years it has been at about the $US25 ($NZ35) range, so I think they might be interested in my thoughts on that on Day One," he said in an interview with National Radio.

Analysts say the former Credit Suisse First Boston investment banker had a brief to cut costs at Microsoft.

He had a similar brief at Carter Holt Harvey where he was chief executive for three-and-half years until 2002 and at CHH's giant parent International Paper -- where he was CFO of the Fortune top 100 company.

Trouble is, while he was applauded for instituting radical change, the share price at both companies went backwards.

When he left CHH in October 2002 he admitted to frustration.

During his tenure, he carved the company from six units into 32, and cut staffing by a third at the Kinleith pulp and paper mill. Despite much slash and burn, CHH's share price shed around 40% of its value to $2.16 under his reign. Today, the price has fallen further -- to $1.85.

It was not much better at IP, where the share price was around $US37 when he took up his post and today is 10% lower at $US33.54.

When queried about the share price on leaving CHH, Liddell said: "It's a tough industry -- that's the reality and we can't hide from that."

His mantra was that CHH was not internationally competitive and not earning its cost of capital. Those two themes remained to the fore at the company's quarterly result briefing last week.

Forsyth Barr Frater Williams head of research Rob Mercer argues Liddell is not to blame for sluggish share prices at CHH and IP.

Good management in poor industries like forestry did not always perform because the sector was often a bigger factor than management.

"The prospects of the benefits of the sort of skills that Liddell has brought to Carter Holt and IP are more a reflection of how difficult that sector has been than any outcome from the systems he embarked on.

"You could argue that had he not implemented some of those changes, those companies would be substantially worse off than they are today."

"If they hadn't taken those costs out and he hadn't done what he had done, then the outcome today would be a far worse picture."

Mercer described Liddell as committed and thorough and said Microsoft appeared to have elected someone who was an activist for change.

Microsoft was in a more favourable sector and Liddell had the ability to boost the revenue line as well as effect cost improvements.

However, analyst Alan Davis with Seattle-based brokerage McAdams Wright Ragen downplayed the importance of Liddell's appointment.

"CFO is not as high a profile a position as it maybe at other companies. It's a high profile company with a lot of high profile players. The CFO is further down the food chain at Microsoft."

Product development, sales and marketing were the divisions that drove a company like Microsoft.

Davis agreed cost cutting was a focus this year.

"In terms of the share price, the CFO can make a difference in a small company, but in a company like Microsoft that's so over-exposed it's ridiculous, it is very, very limited in terms of how he is going to affect the stock price.

"The CFO is not on the list of things that you would look at to help the stock price."

While looking for an outsider to be appointed, Liddell's posting from a forest products company initially seemed an odd appointment, Davis. However, he said both were large, global companies with many business units so from that perspective it was a good fit, he added.

"Cost cutting is the one area where the CFO can add value and help the stock price long-term -- making the correct cost cuts and doing in the right way.

"He's got enough experience and they wouldn't have hired him unless they were going to give him the control to do it. He's done it in prior companies so he's obviously going to be given the power to do what he needs to do at Microsoft."

Liddell will receive a salary of $US500,000 ($NZ700,000) a year and signing bonus of $US300,000. He will receive a stock award of 50,000 shares and will participate in Microsoft's programme that ties executive's performance to future stock awards.

The Wall Street Journal said Liddell's resume pointed to both the conservative tendencies of a traditional financial chief and to deal-making skills which the US business daily said will also be sorely needed.

"The best CFOs of the future have got to have both, and I think have to be ambidextrous," Liddell said.

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