Microsoft offers dividend spark amid hi-tech gloom

Microsoft last night announced plans for its first dividend payment to shareholders, a rare bright spot for investors among a fug of gloomy news from the biggest names in technology.

Microsoft set the tone when it said earnings this year would be weaker than forecast as an anticipated recovery in the market has failed to take hold. The software company said it does not see any immediate pickup in global information technology spending.

Sun Microsystems announced its largest ever loss of $2.3bn (£1.4bn) for the second quarter while IBM reported its sixth consecutive quarterly drop in earnings.

Advanced Micro Devices, the number two maker of microprocessors behind Intel, fell to a fourth quarter loss amid a sharp fall in revenues. Shares in the company were more than 10% lower after hours.

The decision by Microsoft to begin paying dividends is a significant moment for the technology sector. Hi-tech companies have eschewed dividends in favour of investing in R&D - dividends are more commonly associated with mature businesses.

Proposals by President Bush to eliminate the tax on dividend payments has raised concerns among some technology stocks that they could become less attractive. Others including Oracle and Yahoo! have said they are considering the introduction of dividends.

Microsoft is sitting on more than $40bn in cash. It will pay 16 cents a share and offer a two-for-one stock split. The dividend will cost $856m a year.

"We believe that the split, combined with an annual dividend, will make Microsoft stock even more attractive to a broader range of investors," said chief financial officer John Connors.

Microsoft reported a second quarter profit of $2.5bn, up from $2.3bn a year earlier. Revenue rose 10% to $8.5bn. For the full year, it is lowering its forecast for revenues to a range of $31.9bn to $32.1bn, from $32.2bn to $32.6bn.

IBM chairman and chief ex ecutive Samuel Palmisano described last year as one of the most "challenging" the business had faced. The PC maker reported fourth quarter earnings of just over $1bn, down from $2.3bn a year ago.

The figures were ahead of Wall Street expectations and the company said that spending on information technology had at least begun to stabilise. IBM's focus on IT services helped to stem a greater decline in earnings. The global services division improved revenues by 17%, chiefly through acquisition of PricewaterhouseCoopers consulting group last summer. It reported a loss of almost $900m from its hard drive division, since injected into a joint venture with Hitachi.

Sun Microsystems, which makes server computers, wrote off $2bn in goodwill related to acquisitions during the dotcom boom. The company, faced with a steep decline in spending by corporate clients, said sales in the quarter had fallen by 6% to $2.9bn.

Chief financial officer, Steve McGowan, said the company's had $5bn in cash, but he offered little reason for optimism in the near term.

Online auctioneer Ebay gave a more upbeat set of results after enjoying strong Christmas sales and a fourth-quarter profit of $87m, up from $25.9m a year ago.