Microsoft (before the $3/share dividend a couple of years back) -- had enough cash on hand to invest its money in T-bills (the "risk free" rate of return) -- and throw off $1 billion / year in free cash flow from the interest.
Without jeopardizing either the principal OR free cash flow from continuing operations.
And the cash flow continues -- as of April 2010 net profit had risen 35%.
But somehow they have to go to the Third World to cut costs?
The only reason to do that, is if you are seeking market share vs. a competitor who is beating you on cost.
Microsoft HAS no such competitors: Apple is not beating them on cost (see any computer religious thread on FR), and if someone else WERE beating them on cost, they wouldn't have record PROFIT.
Oh, by the way: when a company declares a large dividend like that, it is an admission of incompetence on the part of management: their job is to grow the company's earnings, and then to re-deploy those earnings at a greater rate of return than the shareholder could attain on their own.
So returning a large dividend to the shareholders was an admission that Microsoft didn't know anywhere to put the money which would outperform the shareholders' efforts.
Having *that* kind of cash-flow issue is a nice problem to have, but it means that if you claim you need to cut costs on the backs of employees, you are lying through your teeth and should be (to paraphrase Dave Barry) "hung, stabbed, drawn and quartered, disemboweled, shot, and then REALLY hurt".
Gates is one of the richest men ever to exist on the face of the planet: if you invested his wealth in T-bills at 2%, the interest ON the interest ON the interest would be twice as much as the average MD makes in a year.
Ergo, he doesn't *need* to fire Americans to save money.
Cheers!
But somehow they have to go to the Third World to cut costs?
You are confusing wealth with income. Suppose you have a million dollars in your pocket and face the question of whether to invest $1000 in a particular stock. If your expected profit from that investment is negative, you will not invest. It does not matter how much money you already have (wealth): you are thinking about the next increment of that money (income). This is true for any decision-maker, including MS.
If one expects that the hired worker will not be worth his keep, you will not hire that worker. If some other, cheaper worker may be worth his keep, that worker will be hired. This has nothing to do with cash on hand.
This too is a misunderstanding on your part. You are correct, of course, that management's job is to grow earnings, but it is up to the management to decide on the size of the company. When cash dividend is distributed, the company (its capitalization) becomes smaller (the stock price drops by the size of the dividend).
Such distribution need not have anything to do with the quality of the management. When management does not see investment opportunities --- because of the overall state of the industry or entire economy, for instance --- it is its obligation to give cash back to the shareholders: this way the shareholder is free to deploy that cash somewhere else where opportunities may exist. If he disagrees with the management and is more optimistic of the company's future, he is free to buy more of Microsoft's stock with the cash he receives as dividend.
In sum, when opportunities are abundant, management borrows money and leverages the company; when they are meager, it first deleverages the company by paying up the outstanding loans, and then (if necessary) distributes cash to the shareholders. This is just a normal, although infrequent, reaction to business cycles.