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Stock Market Anxiously Awaiting Microsoft Antitrust Decision Reaction
Kevin Coughlin
KRTBN Knight-Ridder Tribune Business News: The Star-Ledger - Newark, New Jersey
Copyright (C) 2000 KRTBN Knight Ridder Tribune Business News; Source: World Reporter (TM)


Analysts predict Microsoft, the blue-chip tech stock that has become a bellwether of the nation's economic miracle, will dip today from anxiety over the weekend collapse of settlement talks in the government's antitrust case.

But some observers yesterday suggested the pain will pass quickly, citing Microsoft's resilience, prior market reactions, and the likelihood the 2-year-old case will drag on for years on appeal.

"If my (investment) horizon ... as an investor was two years or more, I would hold Microsoft. I wouldn't sell it. If my horizon is a few days, that's a different issue," said Nicholas Economides , an economics professor at New York University. He said he would not be surprised if Microsoft's share price falls $5 or $10, short-term.

But investors scarcely hiccuped after Microsoft's last setback in the case, when federal Judge Thomas Penfield Jackson in November ruled Microsoft a monopolist. Shares only fell about 2 percent, to 89 15/16.

After that November ruling, Jackson appointed mediator Richard Posner, chief judge of the 7th U.S. Circuit Court of Appeals, to try to bring federal antitrust officials and Microsoft together and avoid lengthy litigation.

But the talks collapsed Saturday and as a result, Jackson could issue a verdict as early as this week. The government charges Microsoft abused its monopoly power in personal computer operating systems with its dominant Windows software.

Microsoft, with more than 1 million shareholders, is one of the most widely held stocks in the United States -- a staple of mutual funds and retirement accounts. As of Friday, the company's stock had a market value of $553 billion, making it the world's most valuable company, though that may change if the stock falls enough today.

Shares closed Friday at 1061/4, riding a slight surge on hopes of a settlement and a slight recovery in technology stocks. That's up from 53 3/16 when the antitrust trial began -- indicating federal and state trustbusters have not made a dent in investor enthusiasm.

Microsoft gained 19 percent in March alone on investor optimism the company would settle the case. Some analysts suspect the stock could fall to as low as 85 or 90 when trading resumes today.

"Everything's up for grabs, and the market doesn't like un-quantifiable risk," said Christian Koch, an analyst at Trusco Capital Management. "The stock's going to decline because no one can quantify what will happen."

Microsoft Chairman Bill Gates blamed a rift between federal prosecutors and attorneys general of 19 states for sabotaging an accord. Published accounts hint that some states pressed too hard for the breakup of Microsoft, or for harsher operating restrictions than the federal Department of Justice was willing to accept from the software giant.

Posner finally gave up Saturday after four months of negotiations. Based on his preliminary findings last fall, most analysts expect Jackson will declare Microsoft guilty of illegally wielding its monopoly power against rivals.

Penalties probably would be determined in another long trial. Jackson could splinter Microsoft into separate companies -- creating even greater wealth for investors, if the 1982 AT&T breakup is any indicator. Or he could rein in Microsoft's business practices.

Remedies might include curtailing Microsoft's price breaks for favored customers, barring the company from "bundling" products with its Windows operating system, and insisting it share code so competitors can design Windows-compatible products more easily.

Microsoft has vowed to appeal the case.

Legal experts say Microsoft is betting that even if Jackson imposes draconian remedies, including a breakup, his decision would be overturned by the federal appeals court in Washington, which has already ruled in favor of Microsoft in an earlier case with the government.

Microsoft General Counsel William Neukom said the company was betting that time would vindicate its position, contending "this case is a long-standing play, and we are just in the middle of it. There are a lot more rounds to come and we are confident we will prevail."

Neukom said yesterday he didn't expect Microsoft's current business, particularly Windows 2000, to be affected by any action taken by Jackson.

Today's market reaction to the impasse will be negative, "but it shouldn't be a catastrophe," said Rob Enderle, a technology analyst for the Giga Information Group.

But Enderle suspects Microsoft may have a tough time remaining the darling of investors.

Although Jackson's rulings often get overturned on appeal, Enderle said, Microsoft's enormous profits -- nearly $20 billion -- and legendary focus, could be sapped by a mountain of class-action lawsuits. Dozens of suits were filed after Jackson's initial findings in November; more litigation is virtually guaranteed.

"It's going to be a mess," Enderle said. "It doesn't get any better from here, and potentially, could get a lot worse."

Still, he doubts a Microsoft plunge would spark a downturn in the nation's robust economy. Enderle expects Cisco Systems -- which in recent days has been vying with Microsoft's market capitalization to claim bragging rights as the world's most valuable company -- and the Intel Corp. will assume Microsoft's mantel. Cisco is the leading maker of Internet machinery; Intel is the world's top chip manufacturer.

"There is a chance that by the time Microsoft really feels the pain, and the market really feels the pain, we may have a couple of new bellwethers to pick up the slack," Enderle said, suggesting a new "Cistel" partnership to replace the dominant "Wintel" combo of Microsoft's Windows software running on Intel processors.

But others aren't so quick to write off Microsoft.

"Microsoft is a smart corporation with a lot of talented people," said MIT Professor Michael Cusumano, author of a book about Microsoft's war to topple Netscape in the Internet browser arena.


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