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CFO Leaving Microsoft for Telecom Company, a Setback for Software Giant

TIMES STAFF WRITER

Microsoft Corp.'s chief financial officer and primary deal-maker resigned Wednesday, becoming the latest in a growing list of high-profile executives to leave the software giant.

The departure of Greg Maffei, who in January will become chief executive of a small Canadian telecommunications company, was seen as a setback to Microsoft. Maffei was regarded as one of the company’s brightest talents and a skilled negotiator in a time when Microsoft has been seeking more and more alliances.

“He has been the deal-maker for them,” said Jonathon Guerkink, a financial analyst for Ragen MacKenzie. “He was known as a very tough negotiator.”

Microsoft has a bench stocked with management talent, but Maffei will be “awfully hard to replace,” Douglas Crook, an analyst with Prudential Securities, told CBS Marketwatch.

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Microsoft shares fell $2.94 to $115.25 in after-hours trading, reflecting Maffei’s resignation. The stock had risen $1.69 to a record $117.56 in regular Nasdaq trading.

John Connors, a 10-year Microsoft veteran and a vice president in the finance department, will succeed Maffei in January.

Maffei is part of a new surge of executives leaving Microsoft to start Internet ventures, head up technology companies or who have amassed enough personal wealth to retire at a young age.

Others include Pete Higgins, a high-ranking Microsoft executive and member of Chairman Bill Gates’ inner circle. He announced his resignation Friday and soon will form a high-tech consulting company.

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The recent exodus also has included such Microsoft luminaries as Brad Silverberg, known as “Mr. Windows” of the 1990s, and John Ludwig, a behind-the-scenes player who brought networking and Internet savvy to the Windows effort.

Maffei’s departure was not entirely unexpected. He earlier had wanted to take the top job at Road Runner, an Internet access provider, but Gates reportedly asked him to stay. Maffei recently sold 8% of his Microsoft holdings for $13.8 million, according to filings with the Securities and Exchange Commission. At Wednesday’s closing, Maffei’s 1.14 million stock options were worth an estimated $134 million.

Maffei, who was unavailable for comment, will become the chief executive of Worldwide Fiber, a Vancouver, Canada-based company that is building a $1.3-billion, 18,000-mile fiber-optic cable that aims to link such cities as Vancouver, Toronto, New York and Los Angeles in 2000.

Maffei, 39, has distinguished himself as the company’s acquirer-in-chief since assuming the position of chief financial officer two years ago. He joined the company in 1993 as a director of business development.

For the last two years, Maffei has been on a nonstop buying binge aimed at two strategic goals: expanding the markets for Microsoft software beyond its dominance of the personal computer, and beefing up its Web business through Microsoft Network.

He was behind the $5-billion investment in AT&T; in May that launched the Windows CE operating system into as many as 10 million cable set-top boxes that the phone giant plans to install over its cable network. He bought WebTV for $475 million in 1997 for the technology designed to give TV Internet capability.

Maffei and Apple Computer founder Steve Jobs worked out terms for a $150-million Microsoft investment in Apple--an agreement that included sharing computer software technology. Some said that 1997 deal was a possible lifesaver for Apple.

Although Maffei has been widely praised, he also has some critics.

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In July, he disclosed that the SEC was probing allegations that Microsoft uses its financial reserves to manipulate its quarterly financial results. The allegation came from former Microsoft auditor Charles Pancerzewski, who settled a wrongful-termination suit against the company last year.

Pancerzewski’s central allegation was that Microsoft used its deep financial reserves to smooth its earnings performance. The company, he said, manipulated its books by shifting earnings from stellar quarters into its reserves, then dipping into that fund during slow quarters. That makes the results more stable--and Wall Street rewards stability.

Connors, Microsoft’s new CFO, said the SEC is still probing the matter and added that “we’ll work with the SEC to settle it and resolve it as expeditiously as possible.”

Maffei also was caught on videotape disparaging the company’s temporary workers as it fought continued litigation that accuses the software giant of treating those workers unfairly.

Connors has held a number of senior management positions. He is currently vice president for the worldwide enterprise group and also was the company’s chief information officer.

“There’s a lot of depth there,” Guerkink said. “‘I think they’ll manage the transition very smoothly.”


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