Wall Street Beat: Microsoft deal, Intel dividend buoy tech

IDG News Service - Though Cisco had disappointing earnings news this week, the Microsoft deal to buy Skype, an Intel dividend and solid financials from Symantec helped keep confidence in IT high.

Microsoft's $8.5 billion deal to buy Web phone and video service company Skype, announced Tuesday, lifted markets across the board, even though some analysts grumbled that the price was high for a company that has had a patchy history both financially and organizationally.

If it is approved by regulators, it will be the largest acquisition in Microsoft's history. Microsoft said it will incorporate Skype functionality into its gaming devices and Windows Phone operating system as well as various communications offerings such as Outlook. Microsoft CEO Steve Ballmer also promised to maintain Skype compatibility with non-Microsoft products.

Even though Skype has close to 170 million monthly users, it has had a troubled earnings history. EBay bought Skype, founded in 2003, for $2.6 billion plus other cash-related incentives in 2006, but in the ensuing three years only managed to wring one year of profits from it, finally dumping it for $1.9 billion to a private-investment group.

But the deal has potential for Microsoft, which is playing catch-up in Web mobile communications and video, and has vast resources to enhance and integrate the Skype technology.

"This will put Microsoft back in the game on the larger playing field against newer and faster-growing companies like Google and Apple who have also expanded into the telephony business with their wireless Android and iPhone," said independent analyst Jeff Kagan in an e-mail.

Coming after AT&T's March announcement that it planned to acquire T-Mobile for $39 billion, and Intel's announcement, also Tuesday, that it would increase its dividend, investors apparently took the Microsoft announcement as another sign that cash-rich IT and telecom companies are ready to start disbursing large sums to purchase technology in a fast-paced market, and also to start paying back investors after years of hoarding cash from record-breaking earnings. All U.S. exchanges jumped on the news, with the tech-heavy Nasdaq jumping Tuesday by 28.64 points to 2871.89.

Intel's dividend announcement was particularly gratifying to investors who have seen the company's shares lag behind other chip makers, even though it continues to dominate its market. The company will increase its quarterly dividend to $0.21 per share, up from $0.184, in an effort to create investor confidence.

"Intel's current and projected growth is generating strong cash flow, allowing us to further increase our dividend," said President and CEO Paul Otellini in a statement. Intel forecasts a record 2011, with sales increasing by 20%.

Though Intel is globally dominant, the chip landscape is shifting as mobile-device use grows and chip designer ARM gains traction. While Intel shares have appreciated 5.8% over the past year, the Philadelphia Semiconductor Index of sector stocks has risen 22%. Intel shares, however, jumped $0.27 to $23.03 Tuesday after the dividend announcement.