Microsoft earnings safe,
analysts predict
Antitrust decision was no surprise,
shouldn't scare investors
11/06/99
By David Ward / Bloomberg News
SAN FRANCISCO - Some investors say the ruling
Friday 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, said 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 Friday 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 affect
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," Mr.
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 3 p.m. Dallas time, before
the ruling was released, Microsoft shares fell 19
cents to $91.56. Microsoft stock is up 32 percent
this year and has risen 72 percent in the last 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. who has 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."
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 trying
to monopolize the market for Internet browsers by
"tying," or 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 changing the way it does business
with computer makers that buy its products.
Windows provides more than 40 percent of
Microsoft's annual revenue.
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."
Mr. Gates wouldn't speculate on the impact the ruling
would have on Microsoft's stock.
"Microsoft is not a prognosticator on the stock
market, not up, not down, not sideways," he said.
"I'm not going to speculate on the market one way or
another."
Because Judge Jackson issued his findings of fact
after U.S. stock markets closed, investors were
given 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 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 in February, and those products are
expected to generate new revenue for the company
by next summer.
Even investors who believe that 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 [dollar] 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. "But the whole situation with the
court case, it has little to do with it."
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