Scientist Steven Hawking recently updated the world on his theories about black holes. Previously thought to destroy all matter that they consume, Hawking now thinks that black holes return their contents to the universe upon their death, albeit "in a mangled form." Hawking's new view itself destroys something: the idea of parallel, or baby, universes. His original theory left open the possibility that matter pulled into a black hole might be spit out into another universe.

Breaking the hearts of sci-fi fans everywhere, Hawking said, "There is no baby universe branching off, as I once thought. The information remains firmly in our universe. I'm sorry to disappoint science fiction fans, but if information is preserved, there is no possibility of using black holes to travel to other universes."

Bummer, dude.

In today's Motley Fool Take:

A $75 Billion Payday


Rick Aristotle Munarriz (TMF Edible)

If you've been one of the many complaining about Microsoft(Nasdaq: MSFT) and its tightwad ways, you might want to stick around as the software company fills a pinata with its $56 billion in hoarded cash.

In doubling its regular dividend, launching a $30 billion share buyback, and planning a special one-time distribution of $3 a share, this isn't your old Mr. Softy. No way. We're talking colossal shift here. We're talking Ebenezer Scrooge being transformed into a Gabor sister triplet.

With such an extreme reversal, it's natural to have mixed feelings, too. The move is refreshing. The move is sad.

On the one hand, you have to wink at a software company that has been granted as close a license as one can legally imagine to print money. Even now, in a relative lull, the company is generating so much in cash flow that it will still be cash-rich after its four-year plan and projected $75 billion tab have been paid out. So it certainly won't hurt to see it doll itself up for the growing number of income investors.

But then you have to wonder what Microsoft could have done with that money if it didn't have to be so charitable. Would the company be able to make juicy strategic acquisitions if its buying sprees weren't so carefully monitored and regulated? Would it be granted more operating flexibility if it wasn't seen as a gargantuan global bully? That's why last night's moves are bittersweet. Sure, the distributions and repurchases read well, but this is ultimately a company paying the price for its drop-dead gorgeous balance sheet. That's a case of cash burning in effigy, and it is hardly worth applauding. Mr. Softy had gotten too big for its britches -- and riches.

The one-shot yields aren't new. Since last year, you have seen companies like Iomega(NYSE: IOM), Regal Entertainment(Nasdaq: RGC), and Blockbuster(NYSE: BBI) all willing to fork over a chunk of change in a lump-sum distribution. They weren't part of a grander liquidation strategy, even though those bulky payouts have come at times of corporate flux.

That's why it's the $3-per-share one-time event that irks me the most. I like the buyback. If the market isn't buying in the way it used to and the fundamentals are solid -- which they are -- scooping up 10% of the shares outstanding can prove to be contagious. Hiking the dividend, now in a quarterly format? Cool. But why that chunky taxable event? Why give out nearly 10 years of dividends in one fell swoop? I hope the checks don't come with white hankies. I would never want to see Microsoft surrender.

Longtime Fool contributor Rick Aristotle Munarriz is a Windows-watcher, but he does not own shares in any of the companies mentioned in this story.

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GM's Financed Finances


Seth Jayson

Did you hear the one about the car company that's actually not a car company? Well, OK, it's kind of a car company, the way the banker who lives across the street from me is kind of a full-time golfer.

Allow me to explain. GM(NYSE: GM) announced improved earnings this quarter, $1.3 billion, or $2.36 per share, up 49%. But the bottom line was boosted by oversized results from the company's finance arm, GMAC. The record $860 million tally dwarfs worldwide automotive earnings of $529 million -- not that there's anything wrong with that. It's just that the car part of the car business isn't executing as well, and the finance arm needs the automotive arm, or those juicy financing deals won't keep coming through.

Financing's out-performance is old news, and depending on it for an earnings boost is something GM shares in common with rival Ford(NYSE: F), as Salim Haji notes. Furthermore, the recent wave of 0% financing won't help prop up any of these firms' loan profits, and there's a great likelihood that the big cash incentives may not attract enough buyers out of an American public that is already stretched too thin.

Is GM running out of ideas? Revenues rose 7% on the quarter, but North American market share dropped a full point as competitors like Toyota(NYSE: TM), Honda(NYSE: HMC), and Nissan(Nasdaq: NSANY) make further moves on U.S. turf. Market share gains in Europe were trounced by a loss that increased 15 times over last year's.

The brightest note was probably the 45% earnings boost in GM's Asian operations, where the firm has made some profitable gains in market share.

Looking forward, GM is maintaining its $7 per share earnings outlook. While that puts it at a forward P/E of 6, with a 4.5% dividend yield, I tend to agree with Mathew Emmert's assessment in the latest issue of Income Investor. This is a mediocre firm in a low-margin industry amid a period of slowing growth -- with a ton of cutthroat competition. Investors can find plenty of other companies with better promise for rewards and fewer risks.

For more auto industry Foolishness:

Fool contributor Seth Jayson drives junk cars when he has too, and has no position in any firm mentioned. View his Fool profile here.

Discussion Board of the Day: Microsoft

Do you think Microsoft was right in hiking its dividend, announcing the one-time payout and aggressively buying back its shares? Where does the leading software company go from here? All this and more -- in the Microsoft discussion board. Only on

Lucent in the Slow Lane


Bill Mann (TMF Otter)

July 21, 2004

For whatever reason, some people seem to be getting excited about Lucent(NYSE: LU) again. A look at the headlines says it all: "Profit Soars!" There, of course, are some hopeful signs; the company is no longer bleeding money, for example. Also, Lucent's win of a $5 billion contract with Verizon's(NYSE: VZ) wireless division last week reaffirms that Lucent is still the preferred provider for some of the largest spenders in the telecommunications business.

Lucent earned $0.08 per share for the third quarter, saying that its sales were bolstered by increases in demand for 3G wireless technology and voice over Internet protocol equipment. This included a bunch of non-cash items, such as a revaluation of warrants that will be issued as a result of shareholder lawsuits, recoveries of receivables that the company had written off, and a reversal of restructuring charges the company took in previous quarters. These equaled all told $0.04, or half of the company's entire profit. Instead of looking at these as part of this quarter's profits, a better way for investors to view them would be as a readjustment of losses taken in previous quarters.

For the first nine months of this year, Lucent's total revenues increased a paltry 3.1% over the same period from last year. Lucent's chief financial officer, Frank D'Amelio, anticipates that the total revenues for the year will increase at a "mid-single digits" percentage rate. This would mean that the company anticipates that its fourth quarter will be dramatically better than the fourth quarter from last year. Certainly its third quarter showed such an improvement to be possible, as revenues were 11% higher over the same quarter.

Lucent seems to have done a fantastic job in tightening up its expense base, decreasing its sales, general, and administrative expenses by $366 million, or nearly 40%. More troubling were two line items: One of the areas where Lucent has extracted cost savings seems to have been research and development, where the company dropped its expenditures by more than 21% in the first nine months of this year. As we've said repeatedly in the past, R&D is the lifeblood of technology companies, which are plagued by rapid product cycles and product replacements. A drop in R&D could have the effect of robbing a company's future in order to make its "number" today. Also highly troubling is the rapid increase of Lucent's inventories, more than 55% over a year ago, and at $982 million, a gaudy 24% increase over the previous quarter's levels. For a company that anticipates total revenue increases in the mid-single digits, such a buildup is shocking.

The Verizon contract calls for the Baby Bell to purchase equipment, software, and services from Lucent over a six-year period. This is a nice boost for Lucent, which has seen, along with the rest of the industry, flaccid demand for its wireline equipment business. Verizon intends to use the Lucent equipment appropriations to, among other things, deploy its next-generation cellular network based on Qualcomm's(Nasdaq: QCOM) CDMA technology, which will allow data to transmit many times faster than currently available speeds. But most of the Verizon capital expenditures will go toward simply expanding the company's geographical coverage for its data network. Verizon has considerable latitude on the timing of its purchases, so Lucent needs to be careful about overestimating its revenues on a quarterly basis from the deal.

Yes, Lucent has returned a fourth consecutive quarter of profitability. Profits that don't generate cash are not nearly as powerful as those that do. Thus far this year, Lucent has reported $804 million in income, but only $201 million in free cash flow. Meanwhile, the company has, mostly due to the dilutive impact of the warrants issued as a result of its shareholder suits, seen its share count balloon by 21% over the last year to more than 5 billion.

There's not nearly as much to be completely depressed about in Lucent's results as in recent years' past. But this isn't the time to run out and light sparklers in celebration, either. Lucent still has a long road ahead of it.

Fool contributor Bill Mann does not own shares in any company mentioned in this article.

Quote of Note

"There's no business like show business, but there are several businesses like accounting." -- David Letterman

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