San Francisco, Nov. 5 (Bloomberg) -- Some investors say the
ruling by the judge in the antitrust trial against Microsoft
Corp. is unlikely to harm the company's business or earnings, and
shouldn't result in an extended drop in its share price.
U.S. District Judge Thomas Penfield Jackson, in his first
ruling since the trial concluded, ruled that Microsoft, the
world's largest software maker, has a monopoly for personal
computer operating systems and used that power to preserve its
market domination and hobble innovation, harming customers.
The judge's decision today won't be his last one in the
case. A final ruling on whether Microsoft has violated the
Sherman Antitrust Act will come months later if the company and
the government don't first reach a settlement, and even that
decision is likely to be followed by years of appeals.
In the meantime, analysts say the trial won't impact the
company's business and shouldn't spook investors.
``This ruling is pretty much what was expected for quite
some time,' said Bill Whitlow, money manager at Safeco Asset
Management Co., which owns 54,500 Microsoft shares.
``The consensus has been for quite some time that the judge
would come out with this findings of fact, so I wouldn't expect a
dramatic impact on the stock,' Whitlow said. ``It might be down
a little bit now that the cat is out of the bag.'
Microsoft shares traded as low as 86 on the Island ECN, an
after-hours trading network. In regular trading, which ended at 4
p.m. Eastern time, before the ruling was released, Microsoft
shares lost 3/16 to 91 9/16. Microsoft stock is up 32 percent
this year, and has risen 72 percent in the past 12 months.
``The fundamentals of this company, they're awfully strong,
and that tends to make the stock more valuable,' Michael
Kwatinetz, an analyst at Credit Suisse First Boston Inc. with a
``strong buy' rating on Microsoft said before the ruling was
released. ``This is an event that may cause the stock to ratchet
down in one day, but then that will reverse itself.'
Threats
The case brought by the U.S. Department of Justice and 19
states isn't free of threats to Microsoft. To the contrary,
antitrust enforcers are considering a series of remedies if the
judge rules against the company.
The government accused Microsoft of illegally maintaining
its operating system dominance and tried to monopolize the market
for Internet browsers by ``tying,' packaging its browser with
its operating system and signing exclusivity agreements with
computer makers that precluded them from loading Netscape
Communications Corp.'s competing browser on new computers.
If the judge finds against the company in his final ruling
next year, penalties could include forcing the company to license
its Windows operating system to competitors or change the way it
does business with computer makers that buy its products. Windows
provide more than 40 percent of Microsoft's annual revenue.
Rather, investors are confident that any harm to Microsoft,
if it comes, is still years away.
Microsoft executives say they won't settle the case on terms
that harm the company, and an appeals process could drag on for
years before being decided.
``Today's ruling by the court is part of a long process,'
Microsoft Chairman Bill Gates said in a videotaped statement
released after the ruling was made. ``In the end we're quite
confident that our integrity. and the benefits we provide to
consumers, will be upheld.'
`Sit Tight'
Judge Jackson issued his findings of fact after U.S. stock
markets closed, giving investors several days to examine the
ruling before broad trading in the stock resumes on U.S. markets.
The ruling could spark an initial sell-off in the stock,
analysts say. That reaction should be short-lived, however.
``If your investment time horizon is short, negative
information, even if anticipated by the street, could knock the
stock down a bit, and you should consider that,' said Andrew
Brosseau, an analyst at SG Cowen Securities Corp. with a ``strong
buy' rating on Microsoft. ``If your time horizon is longer, I
think you sit tight, and if the stock gets hit, you take
advantage of it.'
Investors have largely ignored the potential threats from
the case since it was filed on May 18, 1998 and Microsoft
continued to post rising earnings throughout the trial.
Microsoft executives say they expect the coming year to be
even better than past years. Microsoft Chief Financial Officer
Greg Maffei last month urged analysts to raise their earnings
estimates for this coming quarter.
The company also will unveil its long-awaited Windows 2000,
operating systems for businesses and corporations, next February,
and those products are expected to generate new revenue for the
company by next summer.
`Strong Product Cycle'
``Microsoft will continue to be in front of a strong product
cycle, a good year 2000, and everything else that makes people
excited about owning their stock,' said H&Q analyst Galvin.
Even investors who believe Microsoft is unlikely to continue
its past earnings performance and plan to sell the stock say the
antitrust case didn't play into their investment decisions.
``What bothers me about Microsoft is it's a multibillion
company, and you wonder how they can continue to grow like they
have,' said Tom Barry, chief investment officer at Bjurman &
Associates, a Los Angeles based money management firm with $1.1
billion under management. ``But the whole situation with the
court case, it has little to do with it.'
¸1999 Bloomberg L.P.
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