Article 114 of 200
Analysts cool to breakup remedy
Boston Herald
Page 033
(Copyright 2000)


Some industry analysts yesterday blasted the U.S. Justice Department's reported plans to bust up Microsoft Corp. along product lines, saying such a move would only create confusion for consumers and the technology-dependent economy.

After a three-day holiday from trading, Wall Street yesterday quickly punished shares of Microsoft amid light March-quarter revenue growth and newspaper reports that the Justice Department will ask a federal judge to split the world's largest software maker in two. Shares of Microsoft plunged $12.31, or 16 percent, to a close of $66.63 on a widespread sell-off among panicked investors.

Under the Justice Department's reported recommendations, one part of Microsoft would manufacture the Windows operating system, including functions to browse the Internet. The second company would market everything else - including the Microsoft Office programs - and would also be allowed to sell Internet software.

The Justice Department and 19 other states including Massachusetts also would likely seek to curb Microsoft's conduct while the case is being appealed.

"Breaking up Microsoft isn't good for anybody," said Michael Cusumano, a professor at MIT's Sloan School of Management. "We've already seen enormous confusion in the stock market, which has contributed to the collapse of the Internet bubble."

Cusumano said the reported remedy also doesn't address what the Microsoft case is about.

"The case is not about Microsoft unfairly leveraging Office with Windows," he said. "They haven't done that for six years. Under this proposal, the Windows monopoly is left intact."

In a recent opinion piece, Cusumano, co-author of "Competing on Internet Time: Lessons from Netscape and Its Battle with Microsoft," blasted Bill Gates, Microsoft's chairman, for not settling the case. Some bad luck and a few wrong turns in the marketplace could turn Microsoft into a once-great company that failed to sustain its advantage, he wrote.

"They could have negotiated their fate," Cusumano said.

Massachusetts Attorney General Tom Reilly said he could offer no reaction to newspaper reports about possible moves by justice trustbusters.

"The remedy I would support would be the remedy that best protects consumers," Reilly said. "... We're certainly aware of the implications of this case."

U.S. District Judge Thomas Penfield Jackson ruled earlier this month that Microsoft had violated the nation's antitrust laws, saying it abused its monopoly in the Windows operating system, harming competitors, consumers and other companies.

The Justice Department and the 19 states are expected to file their remedy plans with Jackson by Friday. Once the government files, Microsoft will reply on May 10 and the government will file once more on May 17.

Jackson will hear oral arguments on a penalty on May 24.

Meanwhile, Microsoft executives continue to publicly express their defiance to any remedy calling for a break up of the company. Bob Herbold, Microsoft's chief operating officer, told the CNBC financial network that such talk is inappropriate.

Microsoft third-quarter earnings beat Wall Street estimates by 2 cents a share, but analysts said 5 cents of that came from non- operating investment gains. Revenue increased 23 percent to $5.6 billion, but Microsoft conceded light demand for business PCs slowed growth for its software products.

While many of Microsoft's competitors have strong opinions about what should be done, they also are careful not to tread on a potential partner.

Paul D. LaBelle, a spokesman for Lotus Development Corp., said the company's policy is not to comment on the lawsuit.

"They are as much a partner as they are a competitor," LaBelle said.

Nicholas Economides , an economics professor at New York University's Stern business school, said any break-up ordered by Jackson, however, wouldn't be upheld by a federal appeals court or the U.S. Supreme Court.

"It's an extreme remedy," Economides said. "There are other ways to fix the problem without going that far."


Caption: GATES: Strongly opposes any plan to bust up Microsoft.

Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved.